The distinction between "direct" and "indirect" costs may appear intuitive and self-explanatory.
The Guidelines on Costing supersede the Guide to Costing. About the Guidelines These guidelines are intended to inform discussions about costing and to facilitate collaboration by all parties involved throughout the costing process. The Guidelines explain the fundamentals of costing, describe common applications of costing in government, and outline key principles and practices.
They provide general guidance that includes a seven-step approach to costing that departments are encouraged to use. The Guidelines also provide links to specific guidance on costing-related matters, such as the attestation provided by chief financial officers CFO s for Cabinet submissions.
Fundamentals of Costing 2. Cost Is the value of the resources human, physical or financial consumed to achieve a certain end e. Costing Is a management function that involves compiling cost information to serve a specific purpose.
Costing is important because cost information helps managers at all levels understand the financial impact of the decisions they make and the initiatives they propose. They need to know how the costs will change when the nature or level of an activity changes.
Costing can provide answers to a wide range of questions, including the following: What will it cost to deliver the new program?
What additional costs will be incurred if we provide a higher quality of service or alter the type of service? What is the cost of providing a service in my region compared with the cost of providing the same service in another region?
What are the current costs of providing a service and do they align with the fee that was established several years ago? What is the cost of re-engineering the existing system?
High-quality, timely cost information supports decision making and performance monitoring, and enhances transparency. In certain situations it could be used to substantiate the CFO sign-off on financial statements and reports to Parliament. Costing Is the compiling of cost information to serve a specific purpose, such as determining the cost of providing a service, aligning resources with results, measuring performance, evaluating efficiency or reallocating resources.
Price Is the amount that is charged for a good or service. The price the government charges for a good or service is based on the cost of providing that good or service. The government cannot charge more than cost, but it can charge less than cost in order to, for example, ensure fairness, minimize economic impact on clients, and achieve policy objectives.
If there is a gap between the cost of a program and the funding available, management must take action to align planned activities with the funding available.
The amount of funding can also depend on revenues from fees in cases where an organization has the authority to spend revenues. Common Applications The following are the common applications of costing in government.
Level-of-service decisions When deciding what level of service to provide, decision makers can use costing to help identify which costs will change if the level of service changes and which costs will not change. For example, a decision to provide a lower level of service may reduce salary and other operating costs.
Decisions about offering a new service or program When deciding whether to offer a new service or program, decision makers can use costing to help identify new costs but also existing costs that could change.
For example, offering a new service might increase costs for internal services such as communications or legal services; it might also affect the cost of services provided without charge by other government departments.
Cost-benefit decisions When deciding between two courses of action e. Capital investment decisions When making decisions relating to the building, betterment or acquisition of capital assets, decision makers can use costing to help identify and estimate planning, acquisition, maintenance, operating, and disposal costs.Below are the categories of costs for Hawk-eye: Reasonable cost Reasonable cost refer to the cost that given its quantity and nature and is comparable with what any other reasonable company will incur provided it is in the same industry and operating under similar circumstances (Thomas, ).
Production costs refer to the costs incurred by a business when manufacturing a good or providing a service. Production costs include a variety of expenses, such as labor, raw materials.
The Cost of Quality. Quality costs fall into two categories, the cost of achieving good quality, also known as the cost of quality assurance, and the cost associated with poor-quality products, also referred to as the cost of not conforming to specifications.
The Cost of Achieving Good Quality. Intermediate Accounting Vocabulary. STUDY. PLAY. Accounting equation. represent reductions not in the selling price of a good or service but in the amount to be paid by a credit customer if paid within a specific period of time.
costs incurred after the resource has been discovered but . BREAKING DOWN 'Production Cost' Also referred to as the cost of production, production costs include expenditures relating to the manufacturing or creation of goods or services.
For a cost to qualify as a production cost, it must be directly tied to the generation of revenue for the company. Is the compiling of cost information to serve a specific purpose, such as determining the cost of providing a service, aligning resources with results, measuring performance, evaluating efficiency or reallocating resources.