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Running Head: ACT Case 4 & SLP 4 1

ACT Case 4 & SLP 4



US Army corps of engineers worry about cost allocations because there is no preferred

recommended approach to cost allocation. But considering the federal point of view, cost

allocation is required for most of the federal government multipurpose projects having

reimbursable purposes. This implies that cost allocations are made in order to derive an equitable

distribution of project costs among authorized project purposes or those proposed for

authorization. On the contrary, the US Army Corps do not request allocation of project costs

unless a major reformulation of a project is required and such actions require Congressional

authorization, despite the fact that they are part of the federal government.

It matters whether costs are allocated because purposefully allocating project costs is a

way of determining the repayment responsibility with respect to cost recovery, cost sharing, or

both as the situation may require. The federal government wants cost allocation to be done for

most of its multipurpose projects having reimbursable purposes. Cost allocation plays an

important part in planning process where cost sharing will be required because it provides

information needed to determine the magnitude and share of estimated project costs that are

reimbursable. Cost allocation also provides data that is useful in allocation of actual costs and

expenditures for future projects hence ensuring that cost accounts are maintained in accordance

to the plan formulation and allocation principles.

ACT Case 4 & SLP 4 2

I agree with the cost allocation factors selected by the city of Seattle for some of the

departments but not all. For example a department like office of sustainability and environment

cost allocation plan depends on the departments 2009-2010 work plan. This is okay because the

cost allocation factors are consistent with the central service department and it is a true and fair

process because the allocations of costs for the department depend on what the department deals

with and analysis of their actual work plan for the financial year the funds are allocated for.

But I do not concur with the cost allocation factors for some of the departments such as

the city auditor because allocation of costs for 2009-2010 depends on 2006 and 2007 audit hours.

This is not the right cost allocation factor because the circumstances in 2006 and 2007 are far

away to be considered in 2009-2010 allocation plans and yet circumstances are not the same in

all years. It is sensible to have individual departmental cost factors considered other than a

uniform one for all departments because the departments are different and do not operate in the

same way, and it would be unfair for some departments.

Cost allocation methods are not mostly meant for manufacturing companies but for any

organization that deals with money. Cost allocation in the government setting because it enables

the government to assess and account for all its allocations to city departments. It also enables

the government to have set the amount to allocate to each department. Since there is money

involved, allocation enables the government to b e free from corrupt activities and avoid

embezzlement of funds by superior officers in charge of various departments. Cost allocation

also enables the government avoid increased expenditure on its departments that could affect

economic operating conditions such as inflation. Like any other organization, the government

also wants to be as efficient as possible in its operations and cost allocation depending on various

cost driving factors enables the government to cut down on costs incurred.
ACT Case 4 & SLP 4 3

The US Department of human services has a special division for cost allocation because

it is a wide department dealing with issues relating to people such as health services and human

resource services. This contracting of a separate division to deal with this issues help the

government avoid a conflict of interest in its operations, provide independence to a body that will

oversee human services with a lot of openness, and release a work load from the government

employees. The division of cost allocation provides negotiation services for indirect cost rate

proposals and cost allocation plans. The division also reviews cost allocation methods and

practices of entities that receive federal funds to ensure that indirect cost paid by the federal

government are fair, equitable, and in accordance with federal regulations.

The special division reviews cost allocation for universities hospitals and non- profit

organizations by reviewing and negotiating cost rates for them. 85% of cost rate proposals for

colleges and universities, hospitals, non-profit organizations are reviewed and negotiated within

180 days of receipt. The special division conducts annual statewide reviews of cost allocation

plans to ensure billing methods follow Federal regulations and approved accounting practices. If

the division discovers overbilled amounts, it seeks to obtain a refund.

Cost allocation is not only relevant for government agencies but any other organization

that want a suitable way of dealing with money issues and proper cost allocations. For example

multinational corporations with many affiliates in many countries all over the world rely need to

implement a cost allocation plan as the one used by government agencies. This is because such a

move will guarantee the organization that it will avoid fraudulent activities in its accounting

practices thus leading to flaws. Cost allocation will enable such organizations to properly

account for money issued to different multinational affiliates overseas. Due their big state of

operations, cost allocation plans will enable the whole organization to cut down on expenses and
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ensure a smooth flow of management ability to work on a set budget and achieve its goals and

objectives and make superb profits. Cost allocation also enables proper reporting of the

utilization of funds allocated to a certain department for use in a project.

Coffee House Organization

The organization provides a wide range of services in the beverage industry by offering the best

coffee in the market. The organization provides a range of coffees depending on consumer tastes

and preferences. This report is an insight on the organization’s way of cost allocation to its

various departments. It considers the time periods of 2008-2009 financial years.

Organization Department Percentage cost allocation %

Production department 33
Human resource department 15
Sales and marketing department 15
Finance department 10
Administration department 7
Maintenance department 12
Entertainment and technological unit 8
Total 100

The cost allocation was as a result of consideration of the previous budgeted amounts for

each department and the work plans for the current year. Implementation of a good cost plan

enables the organization to lower its cost of operation, account for all departmental costs and

determine when a revision of implied cost is due for consideration. This also enables an
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organization to trace its costs and be in a better position to determine if some of the departmental

cost should be done away with or not. Cost allocation is a very important in any organization that

wants to succeed in business through management of the organizations costs.