case 17-3, powerpoint presentation shelter partnership

8/11/2019 Case 17-3, Powerpoint Presentation SHELTER PARTNERSHIP

1/33

Group 1


2/33

Factual Background

> Shelter Partnership, Inc. is a nonprofit organization

> Collaboratively solving homelessness in Los AngelesCounty

> The case is about cost allocation accounting concerns ofthe said corporation.


3/33

About Non Profit Organizations

A nonprofits statement of financial position reports theorganizations assets and liabilities in some order of

when the assets will turn to cash and when the liabilities

need to be paid.

A nonprofit organizations statement of financial positionis represented in the following accounting equation:

Assets = Liabilities + Net Assets


4/33

Statement of the Problem

What cost allocation and cost accounting methodologymust Ruth Schwartz adopt in order to support the work

of Shelter Partnership, and in particular, the fundraisingefforts of the Shelter Resource Bank?


5/33

Objectives

1. To identify issues in the cost accountingsystem of Shelter Partnership with respect tothe Shelter Resource Bank.

2. To identify alternative cost allocationmethods and practices in view of therequirements of the Shelter Resource Banksfundraising efforts and the principles of fullcost accounting.


6/33

Point of View

Ruth Schwartzo As the Executive Director of Shelter Partnership, Inc.


7/33

Areas of Consideration

Company will continue as a Non-ProfitOrganizationThat the Shelter Partnership will maintain

the same operating units/program areasidentified in the caseThat the expenses listed in Exhibit 1 are

shared across all operating units


8/33

lack of information about the job descriptionsof the various positions

only financial information provided was theStatement of Revenues and Expenses for1990

no specific information about ShelterPartnerships budgeting system


9/33

Analysis

Questions

1. What purposes are served by Shelter Partnerships cost

information?2. What are the cost objects?3. Are Ruth Schwartzs estimates accurate enough?4. Address the issues described in The Concern section

of the case.


10/33

What purposes are served by ShelterPartnerships cost information?

A. Financial ReportingB. Sourcing DecisionsC. Program CostingD. Internal and External Financial AuditingE. Performance AuditingF. Strategic PlanningG. Compliance AuditH. Fund Raising


11/33

What are the cost objects?

> Product

> Organizational Unit

> Other Activity or Purpose which costs aremeasured.


12/33

Relevant cost objects of the ShelterPartnership are the various program areas

o Direct Material Assistanceo Program Developmento Technical Assistanceo Public Policy Support


13/33


14/33

Are Ruth Schwartzs estimatesaccurate enough?

Ruth Schwartzs estimates are hardlyaccurate enough, especially considering thecentrality of the Shelter Partnerships costinformation to the companys fundraisinginitiatives for its direct material assistanceprogram.


15/33

Shelter Partnership, Inc.Statement of Revenues and Expenses - 1990


16/33


17/33


18/33


19/33


20/33


21/33

Full Cost of the SRB

Direct expenses o Salaries of warehouse manager, donations

solicitation manager, donations distribution manager -

100%o Warehouse costs - 100%o Trucking - 100%o Warehouse temporary labor - 100%


22/33

Indirect expenses o Salaries of associate director, development director, office manager, receptionist - 50%o Occupancy (office rent) - 50%o Office expenditures - 50%o Postage - 50%

o Photocopying - 50%o Printing - 50%o Telephone - 50%o Insurance - 50%o Local travel - 50%o Community training/board education - 50%

o Training and Education - 50%o Equipment - 50%o Non-local travel - 33.34%o Newsletters - 33.34%o Publications - 33.34%o Not inc luded - executive director, program manager, development consultant, temporary

receptionist


23/33

Address the issues described in TheConcern section of the case.

Cost of the warehouse not accounted foro Ms. Schwartz must make a more accurate

determination of the cost of the warehouse, as this

affects the Partnerships solicitation efforts Inaccurate cost estimates for insurance dueto the exclusion of the warehouse inSchwartzs cost accounting

o The goods in the warehouse are potentially of greatervalue than the warehouse itself, and so the cost ofthese must be included in the coverage of thePartnerships insurance policy, especially since the

premium is primarily driven by the Resource Bank.


24/33

Alternative Courses of Action #1

Cont inue us ing the same cos t o b jec t s andco st ing m etho ds as before, w hi leim prov ing th e accu racy o f wareho use and

insu rance cos t sAdvantages:

No significantly greater accounting expense The company will be able to focus on two of the most

glaring costing-related problems, which are thoseconcerning the warehouse and Shelter Partnershipsinsurance policy costing

Improvements in cost accounting can be made inphases, and so the company will not be spreading itself

too thin as the changes are introduced


25/33

Disadvantages: Shelter Partnership will be unable to provide donors program-

specific cost information, apart from that associated with theResource Bank

Lack of important program-specific cost information that may beuseful for strategic planning

Costing-related problems associated with salaries areunaddressed


26/33


Use m ore p rec i se cos t ob jec t s by fu r thersp eci fy ing the pro gram areas inc lu ded inAll Other Expenses, while improving theaccu racy of w areho use and insurancec o s t s

Advantages: Better assess each operating units performance by looking at

the achievements of the specific objectives of each programarea, and the degree to which these were accomplished in aparticular accounting period, relative to the costs incurred

This would allow her to determine how much of theorganizations income is dedicated to each operating unit orprogram area


27/33

Disadvantages: Higher expenses for cost accounting High probability in arriving to same information after the

assessment


28/33


Reassess th e co st a l locat ion related tosa lar ies , w hi le im pro vin g th e acc uracy o fw areho use and insurance cos t s

Advantages: Greater accuracy in reporting the most significant expenses of

the Partnership (personnel) Improved overall accuracy of cost information without going into

the minor details of smaller overhead expenses such as

postage, printing, etc.


29/33

Disadvantages: Marginally higher accounting expense Disregards potentially important differences in the way

operating units spend their overhead allocations


30/33


Use m ore p rec i se cos t ob jec t s andim pro ve acc uracy of sa lary co s t ing , w hi leim prov ing accuracy of wareho use and

insu rance cos t ing Advantages:

Significantly more accurate cost information, which is veryuseful for the organization and its donors

Captures all major differences across program areas withrespect to direct and overhead costs and the way these areallocated


31/33

Recommendation

A CA #4o Use m ore p rec ise cos t o b jec ts and imp rove

accuracy o f sa lary co s t ing , wh i le imp rov ingaccuracy o f warehou se and ins urance cos t ing


32/33

Conclusion

The more accurately one can assign a cost to a certainoperational unit or program that factually incurred suchcosts, the more useful the organizations financialrecords and reports.

This is especially important for NPOs like ShelterPartnership, as the correct allocation of the costallocation of resources may help to define the objectivesof the organization and its measurement criteria, and

also help an organization with its strategic planning andpartnerships.


33/33

This in turn will help the donor agencies toevaluate the organizations performance andpotential for delivering the promised benefitsto beneficiaries, as well as compliance withcontract terms and relevant legal/regulatorystandards.

case 17-3, powerpoint presentation shelter partnership

Documents