The Allocation Problem

The Allocation Problem

Question 1:

Cost allocation is a method to find out the cost of services allowed for users of that service. It does not find out the price of the service, but rather determines what the service costs to provide. It is significant to find out the cost allocation of the services that the US Army Corp of Engineers provides, in order to determine a justifiable fee/charge/tax for those services.

Involved in cost allocation are direct, indirect, as well as incremental costs. Direct costs, or divisible costs, are costs that are connected to a single type of service and are related to one type of output or user such as, a sector-to-sector hand-off. Indirect costs, or common costs, are connected to more than one kind of service, like, the physical enroute facility. Incremental costs change with the level of output developed. Incremental costs calculate changes in output, e.g., differences in staffing levels or staffing costs at a ability that is based on traffic count.

US Army Corp of Engineers worry about cost allocation because in some cases inter-agency agreement on cost allocation between the Department of the Interior, the U.S. Army Corps of Engineers, and the Federal Power Commission agreed that there were three satisfactory techniques of cost allocation: the separable costsremaining benefits (SCRB) method, the alternative justifiable outlay (AJE) method, and the use of facilities (UOF) method. Of these three techniques, the SCRB is the most popular and extensively employed method of cost allocation. It is the only method applied by the U.S. Army Corps of Engineers.

Question 2:

Cost driver can be defined as a factor that determines the cost of an activity, Cost drivers are analyzed as part of activity based costing and can be used in continuous improvement programs. They are frequently evaluated together as multiple factors rather than singly. There are two major types of cost driver: the first is a resource driver, which concerns to the payment of the quantity of resources employed to the cost of an activity; the second is an activity driver, which concerns to the costs incurred by the activities demanded to accomplish a particular task or project.

The separable costs-remaining benefits (SCRB) technique of cost allocation is the most extensively used method of cost allocation for multi-purpose water projects. With SCRB, each purpose in a multi-purpose project is allotted the separable costs of involving that function in the project, plus some portion ...