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Shelter Partnership2

This document discusses lessons learned from a nonprofit organization's cost accounting practices and provides recommendations for Shelter Partnership Inc to improve their cost allocation system. It identifies that the current system uses estimates to allocate costs without clear bases, which could result in undercosting of programs. It recommends identifying issues, analyzing the current system, and suggesting actions to allocate costs properly using a clear methodology and considering all relevant costs like personnel time, rental costs, and insurance. This will provide managers with meaningful data to make sound financial decisions.

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Raj Gupta
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90 views

Shelter Partnership2

This document discusses lessons learned from a nonprofit organization's cost accounting practices and provides recommendations for Shelter Partnership Inc to improve their cost allocation system. It identifies that the current system uses estimates to allocate costs without clear bases, which could result in undercosting of programs. It recommends identifying issues, analyzing the current system, and suggesting actions to allocate costs properly using a clear methodology and considering all relevant costs like personnel time, rental costs, and insurance. This will provide managers with meaningful data to make sound financial decisions.

Uploaded by

Raj Gupta
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOC, PDF, TXT or read online on Scribd
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Shelter Partnership Lessons learnt A non-profit organisation whose primary objective is providing a Service or social good, can benefit

t from cost accounting practices that provide meaningful data. Simply producing a set of accounts that provide cost data for the entire entity may not provide enough information to enable meaningful analysis. Non-profit organisations use resources and the challenge is to measure them against the goal orientated activities of the entity. The goal orientated activities of the non-profit organisation should be classified into programs and these can be treated as cost objectives. The programs are centred on the key deliverables of the organisation and must have outcomes associated with them. If costs are apportioned against each program, then a manager can see if it is exceeding its budget allocation, is profitable and offers value for money, enabling managers to measure efficiencies. The challenge is to apportion peoples time and resources across the programs. Running a non-profit organisation with a surplus is an advantage as strategically, it enables the funding of fixed asset expansion. It also enables the organisation to handle the bumps of business as unforseen expenses arise. Running a non-profit organisation at a profit can have a psychological effect on donors as people are happy to give to a profitable organisation whose money is well managed. Meaningful data enables managers to make sound decisions in the event of unexpected donations. One of the main roles of a manager in a non-profit organisation is to obtain more funds. A manager may use information from management reports to ascertain any revenue shortfalls and then pitch for government funding or more donations. Management reports are important as they enable formation of a plan in the form of a budget and allows a manager to track performance.

Shelter Partnership Inc I Problem What improvements in cost allocation must Ruth Schwartz employ to ensureproper costing system in Shelter Partnership? II Objectives To be able to:1.Identify problems in the current costing system of the partnership2.Provide analysis and suggest actions to improve the cost allocationsystem of the entity. III Areas of consideration 1. The company is a non-profit company Accounting for non-profit organizations (NPOs) is peculiar in some waysas compared to commercial organizations. This peculiarity arises from the fact thatsome grants are being restricted by the donors themselves as to their use and musttherefore have an account of costs related only to the said project/restriction. 2. The basis for allocating costs are not clear Costs were being allocated by Ruth to each unit based on herthinking or estimates. Thus, these allocations were made without proper basessupporting the percentage of distribution of costs. Salaries were allocated to theShelter Resource Bank (SRB) based on a pure estimate, resulting to a possible over-or undercosting of the said unit. 3. Possible Undercosting of the Shelter Resource bank (SRB) Given that basis for the allocation of costs among the different objectsof costs were a bit baseless, then there could be possibilities that the costs assignedto the SRB is lower than what was supposed to be. In addition, the cost of thewarehouse (its rental) was not taken into consideration, as well as the insurancepaid for the said edifice. 4. Accounting for the salaries of personnel The distribution of salary costs to the SRB does not have any groundbasis for which they were based. The percentage of allocation used was solelybased on the estimation made by Ruth the accuracy of which is unverifiable.

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