Nowadays cost allocation problem is highly topical for both governmental and non-governmental organizations. Current economical situation in the world explains why it is a must for every organization to provide all the services and deliver business value under tight budgetary limitations.
This problem, for example, is an urgent issue for such governmental organization as The US Army Corps of Engineers. The US Army Corp of Engineers is a federal agency of the United States Army. The agency employs 34,600 civilian and 650 military personnel, which allows it to head the list of the largest public engineering, construction and design organizations in the world. The US Army Corp of Engineers worries concerning cost allocations are connected to obtaining impartial distribution of costs for the projects authorized by government. Though they are a branch of the US Federal Government their concerns still have valid reasons. The Federal Government allocates the costs in accordance to specific laws and regulations directed to reimbursement and expense distribution (US Department of Human Services, Financial Accounting, Division of Cost Allocation 2009). Additionally, it matters greatly whether the costs are allocated for the agency on the reason of its complete dependence from government’s assignation. All the multi-purpose planning process taking place within The US Army Corp of Engineers depends on the amount of costs provided by the government. With regards to this, each and every project by the agency is developed in accordance to financial cover funds provided by the government. The employees of the agency track the size and the proportion of costs needed for a particular project on the basis of budget document provided by the government.
The other example of approach to cost allocation authorized by the government can be seed in the City of Seattle Budget planning. The City of Seattle Budget features a row of cost associated drivers for the city cost allocating (City of Seattle Budget for 2009 – 2010 2009). These cost drivers are used in order to make sure that different departments receive costs which are justly authorized by the Federal law and regulations. This list’s contents basically have reasonable and well-grounded cost drivers; however, some of those cost allocation factors are overestimated or, on the contrary, are underestimated. As far as I can understand, all these cost drivers were selected as a result of serious researches and thorough counting; and yet, I believe in some cases the data collection process for such researches and counting had certain flows. From the City of Searle Budget planning it is evident that all the cost drivers are identified individually. It makes sense as such approach helps to come up with the most precise decisions as to the amount of the cost allocation in each particular case. However, there also exists a certain problem with this approach: such individual approach requires more efforts and thus, more expenses for such counting. Cost allocation within governmental institutions and subordinate entities of the Federation is a wise approach allowing better results for society and the country’s economy. The idea that cost allocation methods should be mostly applied for manufacturing companies is not valid, as far as I believe. It is a must for every human institution and establishment which activity is connected to financial expenses to have a thoroughly planed cost allocation project.
Social organizations also have a serious approach to cost allocation. To succeed in the process of cost destitution avoiding some bitter miscounting a special division was created by the US Department of Human Services (US Department of Human Services, Financial Accounting, Division of Cost Allocation 2009). Some of the ways in which they administrate cost allocation for hospitals are Patient Admissions, Housekeeping Service and Medical Records provided concerning wards and outpatient services provided for the patient (US Department of Human Services, Financial Accounting, Division of Cost Allocation 2009). In the case with colleges they exercise cost allocation in the area of general supervision and expenses planning for student services, student scholarships, student aid, maintenance expenses, and library costs (US Department of Human Services, Financial Accounting, Division of Cost Allocation 2009). As to the other non-profit organizations, cost allocation there is also centered on every possible expanse’s elimination.
Further, it is important that cost allocation is not only relevant for governmental agencies like those mentioned above; it is important for non-governmental organizations. The reason for such approach is in numerous economical benefits this approach provides. To name just a few of such benefits, it should be mentioned that cost allocation provides a ground for successful financial management, allocation of costs to business units, and better discipline within the company’s units and the company’s discipline in general.
Concluding on all the information which has been related above, it should be stated that it is a must for both governmental and non-governmental organizations to have a thoroughly planed cost allocation project. Nowadays economical situation in the world makes it clear that every organization should develop relevant cost allocation policy in order to provide all the services and deliver business value under tight budgetary limitations.
References
City of Seattle Budget for 2009 – 2010. (2009). Web.
US Department of Human Services, Financial Accounting, Division of Cost Allocation. (2009).