Chapter 18: Determining Program Costs Flashcards
line units are
directly involved in the production and delivery of the organization’s services and products. Example: Recreation centre staff are directly involved in producing and supervising recreation services. Their work group and its operation costs would therefore be classified as a line unit.
service units
provide services to other units and to the organization as a whole. Example: The finance office of a recreation department would not directly help produce recreation services and would therefore be classified as a service unit.
Classifying costs as either line unit or service unit costs is not always
a neat and tidy process; however, if you keep the goals of the organization in mind it helps differentiate between the two.
PMAS step 2
establishing line and service units
From the viewpoint of the organization as a whole, the agency does not need to have
service units except to enable line units to accomplish its mission.
PMAS step 3
preparing line item budgets
preparing line item budgets
In the third step in this process, agencies prepare line-item object-classification budgets for all units, both line and service, identified in the second step.
line units have
expenditure and revenue side to their budgets
service units have only
an expenditure side
only source of revenue comes from providing
services to line units
only line unit budgets have a
revenue side
the costs of service units must be allocated to
line units
what is calculated firs expenses or revenues
Calculate expenses first, then identify the amount and source of revenues that support the activity. Doing this forces agencies to identify a source of revenue for supporting each activity/program.
PMAS step 4
allocating costs in the agency
in the fourth step of PMAS agencies allocate
all service unit costs to line unit budgets
cost
All dollars used to produce a program, regardless of the source of those dollars.
direct cost
Can be traced to a specific cost objective.
indirect cost
Costs that are incurred regardless of whether the agency operates a specific program.
cost objective
Any activity for which the agency desires a separate measurement of cost
price
Price is the dollar amount the agency charges participants to participate in a program
formula of full cost of program
Direct Costs + Indirect Costs = Total Costs
cost allocation
process of identifying and assigning costs to various cost objectives.
cost allocation methods
Equal Share of IndirectExpenses
Percentage of Budget
Time Budget Study
Cost-Tracking System
Space or Measurement Studies
3 principles guide cost allocation
an attempt at assigning indirect costs to line cost objectives in a fair and equitable manner. Aim to reflect the full costs of service production.
The method selected should accurately reflect how much of an indirect cost a specific cost objective uses or consumes.
Each method includes a trade-off between accuracy and cost. Programmers need to try to achieve as much accuracy as possible within the limits of reasonable effort.
