Accounting

The United States Army Corps of Engineers is one of the largest public engineering, design and construction management agencies in the World. Although, it is a branch of US Federal Government but several public and private organizations take their guidance from the data and preliminary cost allocation studies from the projects undertaken by this agency. Since the Corp is mainly associated with building dams, canal and flood protection, its planners are in a position to collaborate with Federal agencies such as Federal Power Commission (FDC) to implement cost allocation strategies. It is important that costs are allocated appropriately because it helps administrators to identify the entity that is responsible for repayments with respect to cost recovery and cost sharing in most Federal multipurpose projects having reimbursable purposes. Moreover, reformulation of major relocation projects require agencies to devise a well coordinated cost allocation study as these feasibility reports are evaluated by Congress to grant final approval on various projects.

City of Seattle
Cost allocation is primarily used to measure the total cost that a certain department or project is likely to incur in its payment cycle or lifetime. The City of Seattle is itself an administrative body that needs to keep track of all the development projects undertaken by its departments. In order to make sense of the costs incurred, the City administration has to come out with certain measurable factors that can unanimously be applied to all departments. The worksheet of Central Service Departments and Commissions for cost allocating factors highlights these factors and relevant policies. Usually cost allocating factors consist of selecting the object of costing, choosing the costs related to the object of costing and selecting a method to interlink these two.

I agree with the cost drivers for the City of Seattle cost allocation factors guidelines as it succulently identifies the different departments and sub-categories for cost allocation, classifies the costing methodology and the unit of measurement. It is often very difficult to identify one single method of allocating costs therefore it is mostly a good decision to recognize individual costs as well as drivers and then define each by allocating a certain standard. For example, deciding between rates and cost allocation charges, the City of Seattles Finance, Budget and Economic Development committee clarifies that cost allocation is feasible where, an immediate price signal is not important to moderate demand for a particular service, if usage is stable or fixed, if the cost of the service is stable or fixed, if the dollar amount of the service is minimal, or if the service is in a transition period where demand is difficult to predict (Seattle Municipal Archives). Cost allocation is used in all major service and production companies and is not only limited to manufacturing industry. Without cost allocation, the City Government will not be able to track its capital expenditures that are needed for sound planning and budgeting purposes.

US Department of Health and Human Services
The US Department of Health and Human Services is responsible for protecting the health of all Americans and offering sustenance in the form of Federal Aid to those who need them. It reviews and determines the appropriate funding for related Federal assistance programs to public organizations providing these programs. The division of cost allocation implements cost allocation plans so that nearly 2,600 grantee organizations are able to take guidance from the rules and charge the Federal government indirect costs associated with facility and administration, accordingly. There are many areas in which cost allocation to Hospitals, non-for-profit institutions and educational organizations takes place. Some of these are indirect cost rates, fringe benefits rates, research patient care rates, among others. For example, a non-for-profit organization can refer to the cost allocating guidelines when providing accrued annual leave to employees. Furthermore, the salaries and wages of people working to build proposals, bids or applications to specific tasks are also covered under these guidelines. In an academic environment, the cost allocation guidelines may help in determining on-campus and off-campus rates where an off campus rate would be developed for activities that do not take place in the facilities owned by the institutions but are directly incurred by the institution.

The Need for Cost Allocation
Cost allocation is not necessarily restricted to Government agencies as it is widely used in almost every industry that incurs cost. Whenever an entity utilizes its resources to deliver units of product or services, it incurs expense in undertaking these activities. Usually large companies have several production and administrative departments therefore, without proper planning it is impossible to appropriately divide the allocation of resources to these departments. This is precisely where cost allocation comes into play. When incurred, these costs are evaluated and accumulated into different cost pools. Similar types of costs are then accumulated in one specific cost pool. The purpose of this classification system is to make it easier for administrator to define cost allocation techniques.

Service industries use cost allocation techniques to calculate costs associated with labor or indirect costs in support of labor. Manufacturing industry use cost allocation methods to calculate, production costs and machine hours, among others. In manufacturing, many products share a joint production process therefore making it necessary to allocate costing measures at the split-off point. Nevertheless, cost allocation techniques are widely implemented in almost all large public and private organizations.