Cost Accounting

An effective cost accounting system is essential in today's economy. Managers and planners need to know where the money is being spent. They need detailed information on project and equipment costs and employee productivity.

Surprisingly, less than half of the departments do any cost accounting. That's probably due to the way city government operates. Typically the department submits a budget and operates within that budget. Normal employee, operational and maintenance expenses are simply forwarded to the finance office for payment. There is usually no analysis performed on this data.

Unfortunately, lacking an effective cost accounting system has a direct impact on efficient operations. Without solid cost information, it is difficult, if not impossible, to evaluate operations.

Of those departments that do cost accounting, half do project cost accounting, tracking costs on a project basis. Only one-third do cost accounting on an employee or equipment basis, and only 6% account on an inventory basis.

Interestingly, almost 75% of the departments don't allocate for general overhead. Overhead is an important cost factor. General overhead costs are supervisory costs, facility costs, equipment depreciation and other items. These are hidden costs and can dramatically alter department cost-effectiveness. Typically, these costs are not associated with a specific project, equipment item or labor cost. In allocating general overhead, a percentage of the total overhead expense is typically applied to projects, equipment and/or operations. This percentage is usually based on a variable, such as labor costs, equipment costs or project costs. Every labor dollar, for example, could include a certain percentage to account for general overhead costs.

Of the 25% that do allocate for general overhead, most allocate on a labor or equipment basis, although project allocations were also used. Many departments use more than one method to allocate overhead.