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Q: Can you explain fringe benefits and how they relate to cost allocation? Are they considered direct costs, indirect costs or both?
The definition of fringe benefits is any benefits, such as health insurance, paid holidays, pension, etc., received by an employee in addition to their regular pay.
They relate to cost plans because fringe benefits are associated with all staff that works in central support departments, so you have to account for it and spread it out in a cost plan.
Fringe benefits can be considered as a direct or indirect cost, it just depends what you are looking at. If you are a staff member in the finance department, then the fringe benefits for that person would be classified as indirect costs. But, if you are a police officer on the street, then those fringe benefits associated with the officer would be classified as direct costs.
34 CAPTURE. COSTTREE 2016 Q2 ISSUE
Q: How do you handle allocating a central service department that has part of its expenditures budgeted in another central service department?
There are two ways to handle this issue. First, you can spread the cost in one central service department in a specific function, and then allocate it directly to the other central service department. It will come in as an incoming cost to the other central service department to be spread.
The other alternative is to make a below-the- line adjustment to reduce the cost going out in one department, and then make a below-the- line adjustment in the other department to add the cost that is supposed to be there.
Q: Would a cost allocation plan be beneficial to someone who only has one enterprise fund?
Absolutely, a cost plan is beneficial for organizations of all sizes. Even those with only one enterprise fund. An enterprise fund means it is some type of utility like water, sewer, trash, that gets charged out to the public on a rate basis. If they do not have a cost plan that means they have no basis for charging an overhead component to the outside public who should be paying for that service.
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Q&A
QUARTERLY QUESTIONS WITH
Q: How long would it take the average person to prepare a cost plan in Excel?
This is all relative to how big the organization is. But, that being said, it can take some of the smallest agencies as little as eight hours to as much as fourty hours to update the information in an Excel cost allocation plan.
Excel is such a cumbersome process. The worst part about it is that they need to make sure that ALL formulas on MULTIPLE tabs all tie to each other. If you EVER have to add a department or delete it, you have to try to do that on every single tab of the Excel workbook and copy the formulas. It can take upwards of eight hours just to try to reconcile the formulas and make sure you did not break any of them when you were updating the numbers.
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