The Allocation Problem

The Allocation Problem

ACC 501

Accounting for Decision Making

Cost allocation is the identifying of costs, sometimes indirect, to certain departments in an organization. For example, the maintaining of computer equipment in the human resources department is allocated to that department and not just an overall expense on the organization. Cost allocation can be useful information for an organization that wants to know where the highest expenditures are and who is ultimately responsible for the expense. As mentioned in the module, the easiest way to assign a cost is to ask if the expense would still need to be paid if the activity or department did not exist. If the expense goes away with the deletion of the department, then the cost will be allocated to that department.

Why does the US Army Corp of Engineers worry about cost allocations? Aren't they a branch of the US Federal Government? Why does it matter whether or not costs are allocated?

The US Army Corp of Engineers concerns itself with cost allocation to review alternatives to payment of those costs and to discuss options of repayment responsibility. No matter which option is reviewed, the cost is the same, but the responsibility of repaying the cost is different. It is a necessary part of the planning process and cost-sharing responsibilities. While the US Army Corps of Engineers is a part of the Federal Government, cost allocations are still important, if not even more so. As a part of the US government, they must look at different methods of repayment and decide what is the best course of action and what is the best use of government funds. In the cost as mitigation option, ninety percent of the cost (hydropower) would eventually be paid by customers. The navigation purpose would be allocated ten percent of the cost and this cost would be not recoverable. This drives the point home that indirect costs are eventually paid by the customer. In the cost share as restoration...