THE ALLOCATION PROBLEM

The Allocation Problem

The Allocation Problem

Cost allocation is 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 usually assessed together as multiple drivers rather than singly. There are two main types of cost driver: the first is a resource driver, which refers to the contribution of the quantity of resources used to the cost of an activity; the second is an activity driver, which refers to the costs incurred by the activities required to complete a particular task or project.

We will answer the following questions from three different organizations:

1): Why does the US Army Corp of Engineers worry about cost allocations? Aren't they a branch of the US Federal Government?

A)The reason U.S. Army Corp of Engineer conduct a Cost Allocation is to study a variety of possible approaches that could be used to distribute costs of the proposed alternatives. The primary purpose of allocating project costs is to identify repayment responsibility regarding cost recovery, cost sharing, or both. The Corps of Engineer used the approaches utilizing preliminary construction costs and the unrecovered Federal investment.

B)The U.S. Army Corp of Engineer is required to cost allocate funds for future projects that federal government will fund and it will be mitigate or by private sector. In another terms, after the federal government funds the projects and the mayor investor industries that do benefits from them will be responsible to repay that debt. In the case of U.S. Army Corps of Engineer, Walla Walla District, The Bonneville Power Administration is the responsible industry to re-pay the debt to the federal government.

2) The City of Seattle reading lists a series of costs and associated cost drivers for allocating these costs.  Do you agree with the cost drivers (cost allocation factors)?  Why do you suppose these drivers were selected?  Does it make sense to have all of these individual costs and drivers identified or should  there be a more uniform method of allocating costs?  Why do they allocate costs anyway in a government (City Government) setting -- aren't cost allocation methods mostly for manufacturing companies?

Yes, I do agree with the costs drivers, it is obvious that many State Department has many sub-departments. Therefore, it is necessary to re-distribute cost and allocate cost base on historical cost and any other circumstances necessary for any ...