Management costs allocation

Managing cost centers Internal cost allocation/ charging... 

Labor expenses will need to be allocated between the prescription department and the rest of the pharmacy. These expenses typically are allocated based on the percent of time spent in the prescription department. Marcie Hawkins, the pharmacy manager at Good Service Pharmacy, estimates that she spends 75 percent of her time in the prescription department. Assume that the employee pharmacist and the pharmacy technicians spend 95 percent of their time in the prescription department, so 95 percent of their wages is allocated to the cost of dispensing. The other workers spend about 50 percent of their time in the prescription department. Using these percentages and the wage information contained in the notes under the Income Statement, the total amount of labor costs allocated to the prescription department is 423,165. 

The control of the costs allocated to each project is the next level of cost control for the R D Manager. Monthly auditing is normally employed by companies, with the derivation of the necessary data easily done if the cost per unit system, described in Section B, 3.1.2.1, is used. It should be based on record of time actually spent on the project not on a notional figure. 

The money spent to acquire capital equipment and facilities used in research (referred to as capital expenditures) sometimes is not allocated to project-level management cost accounts. How companies allocated these expenses to specific NCEs for the purpose of the survey is unknown. If a responding company estimated only direct expenditures in its clinical period R D, but included R D capital expenditures in its total R D expenditures, the costs in the clinical period would be underestimated, but the ratio of preclin-ical period costs to total R D costs would be overestimated. Because clinical period costs occur later, the total capitalized cost would appear higher using this method. On the other hand, plant and equipment costs are always accounted for with depreciation formulas, which spread costs out for a number of years subsequent to the actual capital expenditure. 19 Because a proper cost estimate should be based on actual cash outlays, the delay in accounting for capital costs will skew expenditures toward the end of the period and will cause the total costs of R D capitalized to the point of market introduction to be underestimated. 

B. Failure mode study Potential failure modes of critical equipment are ranked according to their risk (probability x consequence). Typically, 80% of equipment s total risk is due to 30% of its failure modes. The failure mode study allows management to allocate scarce resources (labor, materials, and equipment) on a cost-effective basis to attack high-risk potential failures. 

This is an accounting term. Included in this category are salary and management costs. Overhead also includes all costs not covered in categories above. Elements such as machinery costs, shop and office supplies, and insurance are included in this area. Often in developing estimates, overhead is expressed as a percent of direct labor cost. For information on allocating overhead cost refer to... 

SCM emphasizes operating processes in accounting for costs. Allocating the company s legal expenses to a manufacturing department muddles the picture. The purpose of the new format is twofold. The first is to provide comparability among supply chain partners as data is collected at different levels. The second purpose is to direct the attention of managers to improvement opportunities. 

Accounting is also the language of business, and the different departments of management use it to communicate within a broad context of financial and cost terms. Engineers involved in feasibihty studies and detailed process evaluations are dependent for financi information on the company accountants, especially for information on the way in which the company intends to allocate its overhead costs. It is vital that engineers correctlv interpret such information and that they can, if necessaiy, make tlie accountants understand the effect of the chosen method of allocation. 

Static and Flexible Budgets Overhead cost can significantly affect the profitability of a projec t and is the only cost outside the control of the project manager. The project is expected to contribute a definite amount toward the expenses of the company and will be charged this amount even if the production rate is zero. This is the fixecTcomponent of the overhead cost and will include directly allocable costs such as depreciation and a proportion of general costs such as office salaries and heating. 

Qualitative answers to one or more of these questions are often sufficient for making good decisions about the allocation of resources for safety improvements. But, as managers seek quantitative cost/benefit information upon which to base their decisions, they increasingly turn their attention to the use of quantitative risk analysis (QRA). 

Don t allocate funds for managing the quality system without providing a means of collecting the costs or time spent. 

The soil contained 72,000 lb of volatile organic compounds (VOCs). The total cost to complete the project was estimated to be 5.7 million. According to project managers, approximately two-thirds of the funds were allocated for capital costs (including chemicals and the injection process) and one-third for monitoring and support (D18766A, p. 3). 

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