Budget Tools 2e Module 05 Cost Allocation 5.1-5.5 (Self Checking) -1

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(a) What is the pool? (b) What is the base? (c) How much should be allocated to each department? Table 5.3 Ash County: Deputy County Manager of Public Works Deputy County Manag Human Resourc Information Technolo Transportati Faciliti Solid Wa Stormwater Cont Table 5.4 Ash County: Deputy County Manager of Public Works, With Time-Tracking Information Deputy County Manag Human Resourc Information Technolo Transportati Faciliti Solid Wa Stormwater Cont 5.1. Ash County’s organizational structure includes one county manager and three deputy county managers. Each of t deputies oversees a handful of departments and provides human resource support and information technology suppor to each of those departments. Table 5.3 shows the data for the deputy county manager overseeing the public works departments (transportation, facilities, solid waste, and stormwater control). Allocate the cost of the deputy’s organization based on full-time equivalent employees (FTEs). 5.2. In the scenario in assignment 5.1, the deputy county manager wants the cost allocation to be redone using expenditures as the base. What are the new cost allocations? 5.3. In the scenario in assignment 5.1, the deputy county manager is still concerned with creating equity in the distribution of the costs of the organization. Additional information has been collected to increase the accuracy of the allocation. Each area under the supervision of the deputy county manager has tracked the time it spent providing services to each of the departments during the most recent month, as shown in Table 5.4. Use this additional information to produce a direct allocation for the deputy’s organization.

Table 5.5 Boomtown: Parks, Fire, and Water Departments Table Indirect Cost Grou Faciliti City Adm Departme Pa F Wa x 5.4. The deputy county manager asks you to create a simple table showing the total cost allocation to each departmen using the three models you have developed. Prepare a one-page memo to the deputy county manager explaining the differences among the models, your recommended method, and why you recommend it. 5.5. Boomtown is preparing a cost analysis of three departments: Parks, Fire, and Water. To comply with accuracy standards in allocating indirect costs, Boomtown will employ the step-down method of cost allocation. There are two indirect cost groups that are allocated: city administration and facilities. Costs for facilities are allocated first, and then costs for city administration are allocated. Using the data in Table 5.5, prepare the cost allocation using direct cost as the base and determine the full cost of the departments.

Expenditures FTEs $250,000 2 $800,000 9 $3,525,000 32 $37,525,813 275 $28,451,254 150 $8,752,486 24 $35,248,125 412 Expenditures FTEs Deputy HR IT $250,000 2 $800,000 9 $3,525,000 32 $37,525,813 275 15% 35% 25% $28,451,254 150 15% 18% 30% $8,752,486 24 55% 2% 20% $35,248,125 412 15% 45% 25% 100% 100% 100%

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Direct Cost $5,212,544 $1,475,241 $15,025,842 $45,218,534 $35,248,612

Exercise 5.1 To show the cell checking, put a check here: x Ash County Deputy County Manager - Public Works Percent Correct (this page) 100% Grade in Points (All Sheets) 2.750 Expenditures FTEs Deputy County Manager $ 250,000 2 Human Resources $ 800,000 9 Information Technology $ 3,525,000 32 Transportation $ 37,525,813 275 31.94% $ 1,461,236.93 Facilities $ 28,451,254 150 17.42% $ 797,038.33 Solid Waste $ 8,752,486 24 2.79% $ 127,526.13 Stormwater Control $ 35,248,125 412 47.85% $ 2,189,198.61 Pool: Expenditures to be allocated $ 4,575,000 Base: FTE 861 Check 1 1 1 1 1 1 1 1 1

Exercise 5.2 Type your name here, Last Name First Ash County Deputy County Manager - Public Works Expenditures FTEs Deputy County Manager $ 250,000 2 Human Resources $ 800,000 9 Information Technology $ 3,525,000 32 Transportation $ 37,525,813 275 34.12% $ 1,561,049.46 Facilities $ 28,451,254 150 25.87% $ 1,183,553.69 Solid Waste $ 8,752,486 24 7.96% $ 364,097.73 Stormwater Control $ 35,248,125 412 32.05% $ 1,466,299.11 Pool: Expenditures to be allocated $ 4,575,000 Base: Expenditures $ 109,977,678 1 1 1 1 1 1 1 1 1

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Exercise 5.3 To show the cell Ash County Deputy County Manager - Public Works Time Tracking Information Expenditures FTEs Deputy HR IT Alloc Deputy Deputy County Manager $ 250,000 2 Human Resources $ 800,000 9 Information Technology $ 3,525,000 32 Transportation $ 37,525,813 275 15% 35% 25% $ 37,500.00 Facilities $ 28,451,254 150 15% 18% 30% $ 37,500.00 Solid Waste $ 8,752,486 24 55% 2% 20% $137,500.00 Stormwater Control $ 35,248,125 412 15% 45% 25% $ 37,500.00 100% 100% 100% $ 250,000 1 1 1 1 1

l checking, put a check here: x Exercise 5.4 Type your name h Percent Correct (this page) 100% Ash County Deputy County Manager - Public Wor Grade in Points (All Sheets) 2.750 Alloc HR Alloc IT Total Alloc ### $881,250.00 $ 1,198,750 Transportation ### ### ### $ 1,239,000 Facilities $ 797,038.33 ### $705,000.00 $ 858,500 Solid Waste $ 127,526.13 ### $881,250.00 $ 1,278,750 Stormwater Control ### $ 800,000 $ 3,525,000 $ 4,575,000 $ 4,575,000 Check 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 Allocation by FTE

here, Last Name First rks Grade Text Answer $ 1,561,049.46 $ 1,198,750 $ 1,183,553.69 $ 1,239,000 $ 364,097.73 $ 858,500 $ 1,466,299.11 $ 1,278,750 $ 4,575,000 $ 4,575,000 1 1 1 1 1 1 1 1 1 1 Prepare a one page m and your recommend Allocation by Expenditure Allocation by Time Tracking Memo to the Deputy County Manager Subject: Cost Allocation Methods and Recommended Approach Dear Deputy County Manager, I am writing to provide you with a summary of the three cost allo suitable method for your organization. The aim of these models i departments under your supervision. Based on the additional info cost allocation to each department using the three models: Alloc Tracking. As evident from the table, each model produces different cost all the distinct approaches employed by each method. Let me explai use: Allocation by FTE: This method allocates costs based on the numb Departments with a higher FTE count receive a larger cost allocati allocation, as it does not consider factors such as employee salari paid employees might attract a significant cost allocation, while a incurs a comparatively smaller charge. As a result, this method m department. Allocation by Expenditure: In this model, costs are allocated base departments with higher expenditures should bear higher costs. of opportunity costs, which is crucial in accurately reflecting reso expenditure, it may not provide an entirely accurate allocation of Allocation by Time Tracking: The last model allocates costs accord to other departments. This approach recognizes the interdepend allocation. By considering the actual time spent, it ensures a mor the highest level of accuracy in cost allocation and addresses the utilization and supports equity in cost distribution across the orga Considering the differences among the models, I highly recomme method for cost allocation in your organization. This approach co more precise allocation that reflects the resource consumption a interdependencies among service departments, it provides a fair Please let me know if you have any further questions or if you req matter further and assist you in implementing the recommended Thank you for your attention Regards,

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memo to the Deputy County Manager explaining the differences ded method and why you recommend it. ocation models we have developed and to recommend the most is to create equity in the distribution of costs across the formation collected, I have prepared a table showing the total cation by FTE, Allocation by Expenditure, and Allocation by Time locations for the departments. These differences arise due to in the characteristics of each model and the implications of their ber of full-time employees (FTEs) in each department. tion. However, this approach may lead to a disproportionate ies. Consequently, a department with a larger number of low- a department with a smaller number of higher-paid employees may not accurately reflect the true resource consumption of each ed on departmental expenditure. The underlying principle is that However, this method has limitations, it overlooks the concept ource consumption. Therefore, while this model considers f costs. ding to the time spent by each department in providing services dencies among service departments and aims for a more precise re accurate distribution of costs. As a result, this method offers limitations of the other models. It considers the true resource anization. end adopting the Allocation by Time Tracking as the preferred onsiders the actual time spent by each department, resulting in a accurately. By reducing subsidization and considering the r distribution of costs and promotes equity in the organization. quire additional clarification. I am available to discuss this d cost allocation method.

Type your name here, Last Name First Exercise 5 Indirect Cost Groups Direct Cost Base Allocation Subtotal Base Facilities $ 5,212,544 City Admin $ 1,475,241 $ 0 $ 79,301.84 $ 1,554,542.84 Departments Parks $ 15,025,842 $ 0 $ 807,716.75 $ 15,833,558.75 15.74% Fire $ 45,218,534 $ 0 $ 2,430,730.15 $ 47,649,264.15 47.35% Water $ 35,248,612 $ 0 $ 1,894,795.26 $ 37,143,407.26 36.91% $ 96,968,229 $ 5,212,544.00 $ 100,626,230.16 Check 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1

To show the cell checking, put a check here: x Percent Correct (this page) 100% Grade in Points (All Sheets) 2.750 Allocation Subtotal $ 244,607.65 $ 16,078,166.39 $ 736,118.43 $ 48,385,382.58 $ 573,816.76 $ 37,717,224.03 $ 1,554,542.84 1 1 1 1 1 1 1

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3 Total Points Available Item Grade Weight x A mark here 0.25 Base Points (for trying this exercise) 0.25 Manual Points 2.5 Points to be graded 100% Percent all sheets 2.5 Graded Points 0 Problem 4 Text Memo 0.25 2.75 Initial Grade 0.25 0.24 Minimum Earned Points 0.49 Threshold 2.75 Grade Grade Table A 100% B 90% 78 C 80% 78 D 70% F 0%

e makes the numbers in the grade calculation visible.

Budget Tools 2e Module 05 Cost Allocation 5.1-5.5 (Self Checking) -1

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