Cost Allocation Essay

1185 words - 5 pages

Cost allocation is the process of identifying, aggregating, and assigning of cost to various separate activities. There is no overly precise method of charging cost to objects, hence resulting to approximate methods being used to do so. Amongst the approximation basis used includes square footage, headcount, cost of assets employed, and electricity usage amongst others. The main aim of cost allocation is to spread cost in the fairest possible method and also to impact the behavior pattern of the cost.
The government always has various projects to be undertaken for the benefit of the nation, and the projects require proper cost allocation of the available resources. This is done to identify repayment responsibility with the respect to recovery, cost sharing or both. The federal government makes cost allocation with an aim of deriving an equitable distribution of project costs among authorized project purposes, or the proposed for authorization. The laws and requirements that requires cost sharing or reimbursement specifies recovery of cost incurred for the service. This makes cost allocation necessary for most federal multipurpose projects having reimbursable purposes (U, S Army Corps of Engineers, 1998).
To test the financial feasibility and plan acceptability, there must be information on the magnitude, and share of estimated project cost that are reimbursable. This information can be derived from cost allocation. Also where cost sharing is required in the multipurpose planning process cost allocation can be applied. Cost allocation also provides information necessary for allocating the real expenditures ensuring that the cost account are maintained in line with plan formulation and allocation principles during the subsequent construction and planning.
The US Army corp. of engineers is a branch of the U S Federal government. They serve the public, the army; respond to emergencies, environmental concerns, research and development, real estate, reimbursable services, engineering and construction. The Corps get allocations to implement various projects in accordance with the regulations and regulation which governs fund allocation (U, S Army Corps of Engineers, 1998).
The Corps have a principle of not requesting for reallocation of project cost in normal circumstances. The principle recommends that reallocation can only be requested in case of a major formulation of the project is required. The formulation must be of big magnitude to affect the implementation of the project. For instance, huge change on the project scope, significant shift in apportion of storage among purpose already authorized, inclusion of a new purpose, or a removal of an existing purpose. These formulations that warrant the Corp to request reallocation needs Congressional authorization to be implemented. This is because any of the processes might be recommended in the feasibility report. The authorization could include directive language on the allocation of cost. But if...

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