USA Cost Accounting - Essay Example

? Module 4 Case Assignment of the of the Module 4 Case Assignment Introduction Politics and Government in the USA, it seems, are always on a spending spree. Even though we have just emerged from a recession, we seem to be in danger of falling into another. When President Obama won the election just over two years ago, it was first announced that the US was officially in a recession. Though Obama promised change, Government spending has continued unabated and even the risk of default on debt obligations in the beginning of August 2010 did nothing to dampen the Government’s appetite for spending. Although there was an impasse between those who supported Obama and those who didn’t, in the end common sense meant that the debt ceiling had to be increased for America to avoid default. Notwithstanding the exhortations of the public to stop Government spending, to tighten the belts and purses of the Government agencies and politicians and to stop the war on terror that has resulted in overspending with little results, the inefficiencies, the bumbling and the ineptitude of the Government prevail. Obama-care has been opposed not because it is wrong, but because it would result in just more inefficiency. The government is butting into the realm of the private sector, the same mistake that was made by giving too much responsibility to Fannie Mae and Freddie Mac, the controllers of the home mortgage industry and the housing sector. In such a scenario, cost allocations, revenue and expense targets and continued management reporting can make a world of difference in gauging the efficiencies of Government organizations and agencies. In this assignment, we are going to look at how cost is allocated in Government departments and private agencies and discuss the need and importance of the same. Discussion Let us start with the US Army Corp of Engineers. Even though they are a branch of the US Federal Government, yet they are concerned about cost allocation. The mission of this institution is to provide important and critical public engineering services and to strengthen the security of the USA in times of both war and peace, to energize and motivate the economy, and to reduce risks posed by and as a result of natural and man-made disasters. While we often think of the US Army Corps of Engineers to be a part of the US Army and therefore subject to Government funding, the truth is that it is funded by the taxpayers. No wonder it is worried about its funding and cost allocations. Even the Federal Government has rules and regulations for cost sharing and allocations, and the US Army Corps of Engineers has to abide by them. This means that the feasibility for all proposals and activities planned by the US Army Corps of Engineers has to be discussed and the need and cost of the projects debated before permission to proceed is granted. But the primary purpose of all cost allocations is to ensure their recovery or reimbursement by the powers that be, or to arrive at a basis for sharing of common costs between different arms and agencies of the Government. Both drawdown and flow augmentation methods are considered here (www.nww.usace.army.mil). The drawdown method presupposes that there would be a depletion of natural resources during the project, while the flow augmentation presupposes that there would be an apportionment of storage among already identified purposes. It has been a policy of the US Army Corps of Engineers not to ask for a reallocation of costs unless a major change or overhaul of present facilities is planned to be implemented. Let us now move on to how the City Government plans its cost allocations and revenues. For instance, a perusal of accounting records for the City of Seattle Government Department lists a series of costs and associated cost drivers for allocating these costs. Most of these allocations have been made on the basis of common sense and practical wisdom- although I am sure some have been uniform throughout the history of modern Government. A further look at most of the cost drivers shows that it makes eminent sense for the City Auditor Office to be allocated costs by number of cases taken, and the Civil Service Commission and the Office of Civil Rights to have their costs allocated by the number of cases dealt with through the year. In the absence of specific cost drivers to allocate departmental costs, we would have to fall back on the memorandum of agreement by which their services were engaged. This is shown by the cost allocation for the Mayor Office, the Office of Policy and Management and the Office of Economic Development. Alternatively they could have a fund 100 percent allocated to them for the year (www.cityofseattle.net). Despite the administrative headache, it really does make sense to have these individual costs allocated per service department. Whatever cannot be allocated to a specific cost driver is relegated to a common pool over which all the remaining costs are spread. Though this method of cost allocation started in the manufacturing sector, the strength and merits of this method have resulted in their adoption by the US Government as well, owing to the commonsensical and logical approach and the feasibility of this method for audit purposes as well. Moving on to the US Department of Human Services, we see that it has a special division just for Cost Allocation. This is indeed not surprising if we consider the vast number of departments falling under the purview and control of this agency and the number of costs they incur even on a yearly basis. It is an organization providing support services to the US Department of Health and other Federal agencies worldwide. The PSC has 60 departments including the Clinical Services, Organizational Development Services, Work/ Life Programs, Asset, Building and Leased Space Management, to name a few. The 2009 directory provides the description and details of each service provided as well as the rate or method of allocation for the provided services. The cost allocation codes have all been given at the end of the directory (www.psc.gov). In fact we would see that cost allocation in most if not all modern institutions is taking place today following these very bases and precepts. This is true whether the institution in question is a hospital or a college or for that matter even a non-profit organization. Cost allocations here are usually made on terns of usage of facilities and allocated to different departments. Conclusion Though this assignment is concerned mostly with cost allocations for Government agencies, educational and other service institutions, we ought never to lose sight of the fact that cost accounting and allocation first developed in the manufacturing industry and that its relevance beyond this field in other industries in the public and private sector is only just being realized. The accounting and cost records of most manufacturing firms today will nevertheless reflect the reliance on standard and variable costing, job order costing or process costing. The cost allocations that we are discussing here are applicable mostly to factory overhead charges, or those costs that cannot be directly attributed to direct labor or direct materials, and it has been adopted in manufacturing industries for the last 50 years or more (Matz et al., 1988). So we should never imagine that it has lost its importance for the manufacturing sector. References City of Seattle Budget for 2009 – 2010 (2009). Retrieved Sep 2, 2011 from: http://www.cityofseattle.net/financedepartment/0910adoptedbudget/Cost_Allocation_2009_Adopted_and_2010_Endorsed_Budget.pdf Matz, A; Usry, M. & Hammer, L.(ed) (1988): Cost Accounting: Planning & Control., 9th ed South Western Publishing. US Army Corps of Engineers - Walla Walla Project (2011): Retrieved Sep 2, 2011 from: http://www.nww.usace.army.mil/lsr/reports/misc_reports/allocate.htm US Department of Human Services (2011). Financial Accounting, Division of Cost Allocation. Retrieved Sep 2, 2011 from: http://www.psc.gov/directory/2009directory.pdf Read More