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Shelter PartnershipLessons learnt

• A non-profit organisation whose primary objective is providing a Service or “social good”, can benefit from cost accounting practices that provide meaningful

data.

• Simply producing a set of accounts that provide cost data for the entire entitymay not provide enough information to enable meaningful analysis.

• Non-profit organisations use resources and the challenge is to measure themagainst the goal orientated activities of the entity.

• The goal orientated activities of the non-profit organisation should be classifiedinto programs and these can be treated as cost objectives. The programs arecentred 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 isexceeding its budget allocation, is profitable and offers “value for money”,enabling managers to measure efficiencies.

• The challenge is to apportion people’s time and resources across theprograms.

• Running a non-profit organisation with a surplus is an advantage asstrategically, 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 ondonors as people are happy to give to a profitable organisation whose money iswell managed. Meaningful data enables managers to make sound decisions inthe event of unexpected donations.

• One of the main roles of a manager in a non-profit organisation is to obtainmore funds. A manager may use information from management reports toascertain any revenue shortfalls and then ‘pitch’ for government funding or moredonations.

• Management reports are important as they enable formation of a plan in theform of a budget and allows a manager to track performance.

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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 tocommercial 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 her“thinking” 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.