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i. Shelter Collaboration, Inc. is a not-for-profit company collaboratively solving homelessness in Los Angeles County through policy analysis, program design, resource development, and advocacy in support of firms and local federal governments that serve the homeless. Shelter Partnership was founded in 1985.
ii. The company offered program development to acquire employment, housing and education, and carried out research in comprehending homelessness much better.
iii. The direct material support was provided to homeless shelters through the Shelter Resource Bank which solicited donations of new/excess stock from manufacturers/retailers and distributed these items to the homeless shelters in LA
How should Shelter Partnership properly account for the rental expense of the storage facility (where Shelter Resource Bank is running) and insurance coverage expenses to satisfy its preferable allocated profits and costs?
i. To figure out how the possible under-costing of one of the organization’s major aspects (Shelter Resource Bank) might affect their fund raising.
ii. To re-evaluate the collaborations expense standards (budgeted vs actual).
Item costing, fund raising and sourcing decisions:.
i. Personnel expenditures have the largest element in the collaboration’s costs.
ii. The partnership utilized a single phase cost accounting system. All storage facility costs were a direct cost to the Resource Bank. All of the trucking and storage facility momentary labor costs were likewise thought about direct expenses of the Resource Bank.
iii. The partnership’s profits are come from private (foundations/individual donors) and public sources (public grants).
Shelter Collaboration’s products/services:.
i. Resource Bank.
ii. Technical – fund raising and circulation.
iii. Program Advancement – conferences.
iv. Public Law Support – research studies.
* Profits originate from a range of personal and public sources.
* Also, the partnership earned a small amount of interest income.
*The largest expenses for the partnership were for personnel
*Actual expenses don’t equal with budgeted expenses
*Possible undercosting of the Shelter Resource Bank
*Showing higher expenses for the resource bank might make some donors more sympathetic with her fund raising efforts for the bank.
*Possible decrease of donations due to high expenses
iv. Use activity-based costing system
Currently, Ruth Schwarts uses a single stage cost accounting system and now she wants to identify the actual cost for some of the cost directly incurred one of their operating entity, Shelter Resource Bank. She wants to account for the rental cost of the warehouse where Shelter Resource Bank is operating and insurance cost which was not properly allocated to the Resource Bank as it should be since concerns on safety were more abundant in the warehouse.
The third ACA is recommended for the partnership’s concern on cost allocation. Activity-based costing is an improved method for allocating overhead costs. Instead of using one factor for cost allocation, this new method focuses on different aspects of the production process and allocates the overhead based on each product’s reliance on different overhead aspects. The first stage of allocation determines the cost of each occurrence of an overhead event during the process. The second stage allocates the cost of each occurrence to individual items produced by the business.
Activity-based costing is the newest means of calculating how overhead expenses are allocated to different products at the time of publication. The traditional allocation method requires the business to pick one metric to use as a means to allot overhead costs. Instead of using a single factor, activity-based costing uses several factors to determine how to allocate overhead. Each factor is tied directly to an aspect of overhead. Then each product is evaluated based on how much of each element of overhead is used to produce the good, and the price is adjusted accordingly.
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