Cost Accounting And Grant Application
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  • There are many techniques that have been developed in the manufacturing sector in order to make manufacturing costs as low as possible and thereby increase profits.
  • In the non-profit sector our aim is not profitability but efficient and effective use of resources in order to provide services. We don’t manufacture goods, but provide services.

Service Provision considerations

  • Cost accounting techniques are most easily applied to activities in the library that have measurable outputs (items cataloged, books purchased, materials digitized) and less easily applied to services where the output, although measurable, is less concrete (reference questions answered, storytelling sessions provided). In these latter activities, the outcome, as opposed to the output, is difficult to measure.

Types of Managerial Accounting Approaches

  • Life cycle costing – according to Smith (p. 113), life cycle costing is defined as the accumulation of all costs related to an asset, project, service, or management policy over its entire life from start to completion or abandonment. It is usually applicable to long term purchases where the asset involved has annual maintenance costs, beginning installation costs, and removal costs.
    • Life cycle costing usually demands determining the present value of future expenditures related to the asset or activity. These present values are determined by TVM (Time value of money) considerations.
    • For example, we are trying to decide which of three long term (5 year) copier leases we should sign.
    • In deciding among the alternatives not only must we consider the various options of the machines, but most importantly the long term costs involved. In such a case we are usually given annual lease payments, as well as additional fees for exceeding copy limits.
    • To compare them properly we should discount all future costs to the present value.
    • What discount rate should we use? Some writers recommend using 10% for such calculations. As long as we apply the same rate for each of the three vendors, we will have comparable figures upon which to judge among them.
  • Activity Based Costing and Management is usually described as an alternative to traditional cost accounting techniques using cost centers
    • With traditional cost accounting overhead or indirect costs are allocated to products or activities in various ways briefly discussed earlier. Activity based costing and management traces indirect costs to the service or activity provided and then allocates those indirect costs based on that analysis.
    • Activity based costing assigns costs first to activities and then to the products or services based on each services use of those activities.
    • The assumption is that activities are the cause of costs; therefore by analyzing activities and assigning costs to each activity or task, costs can be reduced.
    • So ABC more clearly identifies and measures costs of performing the activities that go into a product than traditional costing methods.
    • Perhaps the clearest demarcation between traditional cost accounting and activity based costing can be explained by the identification of value added activities or tasks and non-value added activities or tasks.
    • Value added activities contribute clearly to mission objectives while non-value added don’t
    • Examples of non-value added activities would be reporting, moving library materials, sorting, checking, attending departmental parties, jury duty, idle time during holiday periods when use decreases.
    • Obviously the definition and evaluation of which activities are value added and non-value added are library specific and contextual.
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