Fundamentals of Cost Accounting 3rd Edition by William N. Lanen, Shannon W. Anderson, Michael Maher

Exercise 21

Cost Hierarchy for a Not-for-Profit

Below are various resources and activities for a social services agency that helps homeless people get housing.

Required

Indicate whether each of the following are likely to be unit-level or facility-level activities.

a.Utilities—building’s electrical power, natural gas, phone, and sanitation services.

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b.Salaried caseworkers—personnel who interview and service clients.

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c.Supplies—materials for office personnel.

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d.Library—regulations, research, and court documents to support child, homeless, and elderly citizen services.

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e.Information technology—desktop and mobile computing equipment and personnel to develop and maintain the agency’s information system.

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f.Management—salaries and support for administrators.

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g.Building—offices of employees.

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h.Automobiles—transportation for caseworkers to meet clients.

Step 1 of 9

Cost accounting system

This is a system designed for inhouse or internal managers and their decision making. Cost accounting information is not needed for comparison with other companies. This information is commonly used in financial accounting also, but it is primarily used by company managers for their decision making. It is important that cost accounting information is relevant for the decision making of the manager.

Unit level activity

These are activity that increases the cost per unit like direct labor hours paid or direct material purchased.

Facility level activity

These activities increase the facility level cost like setting new school, office hospital etc. It does increase cost per unit.