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4.1 assesing fixed and variable cost

4.2 Determining the break -even point considering program expansion with marginal analysis.

Estimate Direct and Indirect Costs The nonprofit Hope for All CHFA) has four departments: drug treatment, Job training, fundraising and administration. All departments share the same facili- Lies and the accounting system classifies occupancy-related costs as common indirect costs. You are the financial manager of HPA, and you are asked by the executive director to provide an estimate of the full costs for each department for the next board meeting. The common costs are $200,000 and consist of mortgage interest, utilities, maintenance, depreciation, and phones. You start the task by discussing the matter with program directors, and col- lectively you decide to use the square footage of the facility that each department occupies as the base for allocation. You collect the information and calculate the percentage of the space used by each department, as shown in Table 4.1. Using the available pool of costs and the agreed-upon distribution base of the square footage of the facility, you allocate the common cost ($200,000) and cal- culate the total cost for each department as shown in Table 4.2. The drug treat- ment department is allocated half of the indirect costs, as it accounts for half of the total office spaces. A single criterion, such as space, may prove to be inadequate for allocating different and diverse indirect costs to each program. Each of the indirect costs may benefit programs differently and/or to varying degrees. This might call for accumulating indirect costs into separate cost pools and then allocating each pool individually to programs using a base that best measures the relative bene- fits to each program. This method tends to be more accurate; however, increas- ing the accuracy of the costing scheme has its own cost in terms of system investment, training, and staff time. Financial managers need to balance cost and benefit in designing or extending the cost accounting system between the value of the information it provides and the costs to develop and maintain the system. Treatment Total TABLE 41 Direct Costs and Allocation Base by Department Administration Fundraising Direct costs $ 50,000 $ 100,000 Allocation base 10% 15% Training $ 300,000 25% $ 500.000 50% $ 950,000 100% Treatment Training Total TABLE 42 Full Costs by Department Administration Direct costs $ 50,000 Allocated costs $ 20,000 Total $ 70,000 Fundraising $ 100,000 $ 30,000 $ 130,000 $ 500,000 $ 100,000 $ 600,000 $ 300,000 $ 50,000 $ 350,000 $ 950,000 $ 200,000 $ 1,150.000 Estimate Direct and Indirect Costs The nonprofit Hope for All CHFA) has four departments: drug treatment, Job training, fundraising and administration. All departments share the same facili- Lies and the accounting system classifies occupancy-related costs as common indirect costs. You are the financial manager of HPA, and you are asked by the executive director to provide an estimate of the full costs for each department for the next board meeting. The common costs are $200,000 and consist of mortgage interest, utilities, maintenance, depreciation, and phones. You start the task by discussing the matter with program directors, and col- lectively you decide to use the square footage of the facility that each department occupies as the base for allocation. You collect the information and calculate the percentage of the space used by each department, as shown in Table 4.1. Using the available pool of costs and the agreed-upon distribution base of the square footage of the facility, you allocate the common cost ($200,000) and cal- culate the total cost for each department as shown in Table 4.2. The drug treat- ment department is allocated half of the indirect costs, as it accounts for half of the total office spaces. A single criterion, such as space, may prove to be inadequate for allocating different and diverse indirect costs to each program. Each of the indirect costs may benefit programs differently and/or to varying degrees. This might call for accumulating indirect costs into separate cost pools and then allocating each pool individually to programs using a base that best measures the relative bene- fits to each program. This method tends to be more accurate; however, increas- ing the accuracy of the costing scheme has its own cost in terms of system investment, training, and staff time. Financial managers need to balance cost and benefit in designing or extending the cost accounting system between the value of the information it provides and the costs to develop and maintain the system. Treatment Total TABLE 41 Direct Costs and Allocation Base by Department Administration Fundraising Direct costs $ 50,000 $ 100,000 Allocation base 10% 15% Training $ 300,000 25% $ 500.000 50% $ 950,000 100% Treatment Training Total TABLE 42 Full Costs by Department Administration Direct costs $ 50,000 Allocated costs $ 20,000 Total $ 70,000 Fundraising $ 100,000 $ 30,000 $ 130,000 $ 500,000 $ 100,000 $ 600,000 $ 300,000 $ 50,000 $ 350,000 $ 950,000 $ 200,000 $ 1,150.000

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