The FUNdamentals of

Full Cost Accounting

Featuring your friend andmine, that financial whiz ofwaste … Alan Green shade !

Test your skill on the“Total Your Trash” Quiz!

and

Don’t miss the harrowingsaga taking place at theYourtown Landfill

The Fun Starts Here! We’re from the Florida Department of Environ-mental Protection (DEP), and we’rehere to help you. Yes, really, pleaseread on! We at DEP have resolved todo all we can to explain full costaccounting to local government solidwaste managers. As a first step, thisbooklet will help explain the objectives and benefits of using full cost accounting for your solid wastecollection, recycling, and disposal operations.

Full cost accounting is a systematic approach for identifying,summing, and reporting the costs incurred to provide solid waste management services to a community. In addition to obvious and direct costs, full cost accounting aims to include “hidden” as well as“overhead” costs involved in solid waste management programs.

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Hi!

Although we can’tpromise hours of unparalleled delight, weat least hope to convince you that full cost accounting will so greatly benefit you and your community thatyou will give it a try.What benefits, you ask?

Well, there are many.Full cost accountingleads to more efficientmanagement of costsand resources, and itgives you ammunition

Find out how yoursystem scoreswhen you TotalYour Trash!

Use the score sheets throughout the bookletto note the costs you consider to be part ofthe full cost of solid waste management inyour community - and identify the ones you might have overlooked!

Simply check off the costs you currentlyinclude and add them up for each quiz,giving yourself one point per item.

for those political battles that seem to come with the territory ofmanaging solid waste programs.

Using full cost accounting data provided by local governmentsthroughout the state, DEP will prepare and issue an annual comprehensive report. Using the report, you will see what other communities pay for solid waste management - and maybe pickup some tips on how to cut costs. While there is no guarantee that onelocal government will reduce its costs by adapting the strategies usedin another community, the use of full cost accounting can provide useful information for solid waste managers and their communities tosupport sound management and planning. Local governments will not be ranked, and the report will not be a “report card” on howcommunities run their solid waste management systems. Like you,we realize that cost is one of many factors that determine theeffectiveness of a solid waste management system, and that onesystem can’t be considered better or worse than another simplybecause one community has higher costs than another.

The “Total Your Trash”Quiz in the pages of thisbooklet will help youevaluate your currentknowledge of full costaccounting and assist youin identifying costs youmight have overlooked indetermining the full costof solid waste management.We realize that not all theitems listed will apply toevery local government.Give the quiz a tryanyway and relate theitems listed to the solidwaste managementservices you provide.

Quiz 1

Up-Front CostsThe initial investments and expensesnecessary to manage solid waste. Checkoff the costs you include in calculatingthe “up-front” costs of solid wastemanagement.

Planning

Land Acquisition

Permitting

Building Construct- ion and Modification

(4) Your Total Items Included for Up-Front Costs

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What Is Full Cost Accounting?What Is Full Cost Accounting?

FF irst of all, relax - full costaccounting is not rocket

science. It’s really just theapplication of basic cost account-ing principles that can be highlybeneficial to you as a solid wastemanager. Full cost accountingprovides you with a valuable toolfor understanding and reportingyour community’s solid wastemanagement costs. For a varietyof reasons, most communitiesand their citizens do not knowthe real cost of managing solid waste, making it more difficult toreach good decisions about solid waste management options.

Full cost accounting is not the same as cash flow or general fundaccounting, which is the most common method of governmentaccounting used today. In this system, outlays are recorded whencash is actually paid out for goods and services. However, foractivities such as solid waste management, which often are fundedthrough user fees based on cost, cash flow accounting gives adistorted picture of actual costs. As you are probably aware, not allsolid waste management costs result from current outlays of funds - past and future capital outlays also contribute significantly to theoverall cost of managing solid waste in your community. Cash flowaccounting systems do not include up-front or back-end costs, suchas those for land acquisition and long-term care. Those systems alsodo not take into account hidden costs, such as those for resourcesdonated for recycling programs that do not result in cash outlays.

All local governments can implement full cost accounting, regardlessof how they structure their programs and keep their books. Full costaccounting uses generally accepted accounting principles to quantifyall direct and indirect costs, as well as “hidden” costs.

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Even when efforts are made to identify the costs of managing solidwastes, it is easy to overlook costs that are lumped into “overhead”or “indirect” accounts and should be recognized as direct costs.Some costs that often are not included in establishing a ratestructure for solid waste fees are land acquisition costs, planning

Quiz 2

Operating Costs Operating Costs The everyday expenses of managing solid waste. Check offthose “operating costs” you include in calculating the full cost ofsolid waste management.

Personnel Wages, Salaries, and Benefits

Building and Vehicle Maintenance

Supplies

Insurance

Power and Fuel

Rent and Leases

Contract Services (including the cost of negotiating and administering contracts)

Depreciation

Debt Service

Public Education and Outreach

Unexpected Costs (such as providing bottled water to citizens whose wells are found to be contaminated from landfill leachate)

Indirect or Overhead Costs ((such as services provided by other departments or time on solid waste issues spent by the mayor, county administrator, and other elected officials)

Hidden Costs (such as donated supplies or services)

- (13) Your Total Items Included for Operating Costs

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and permitting expenses, costsof closure and long-term care, the cost of support servicesprovided by other localgovernment departments,costs for negotiating andadministering contracts, andan array of social andenvironmental costs that canbe difficult to quantify.

Full cost accounting alsoallows you to spread

(depreciate of amortize) significant capital outlays over the activelife of the facility. It is important to recoup those costs from tipping fees while the facility is open.

Back-End Costs

The expenses of properly closing down solid waste manage-ment facilities at the end of their useful lives, as well as thecosts of post-employment health and retirement benefits forcurrent solid waste employees. Because cash outlays for back-end costs are not made until after the useful life of the facilityhas ended, those costs are said to be “accruing” during theactive life of the facility.

Site closure

Building and Equipment Decommissioning

Long-Term Care

Retirement and Health Benefits forEmployees

(4) Your Total Items Includedfor Back-End Costs

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Quiz 3

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Why Should You Implement Full Cost Accounting?

A lthough it should not be your primary reason for implementingfull cost accounting, the law in Florida requires that you

determine and report full costs. In 1989, the Florida Legislaturepassed a law that requires local governments to report to the stateand to the citizens in your community the full cost of solid wastemanagement operations.

Quiz 4Remediation Costs at Inactive Sites

The current cost of cleaning up contamination of soil, groundwater,and surface water caused by inactive facilities such as closed landfills.

Investigation, Containment, andCleanup of Known Releases

Closure and Long-Term Care atInactive Sites

(2) Your Total Items Included forRemediation Costs at Inactive Sites

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A more compelling reason is self-defense. Garbage, as you are probably aware from personal experience, can be a highly politicalissue. Many state and local officials can attest to intense citizeninterest in municipal solid waste management. Full cost accountingcan help you make your case to the citizens and elected officials byproviding you with sound, objective financial data to backup yourdecisions and recommendations. Determining what solid wastemanagement really costs can help you.

Accommodate the peaks and valleys in cash expenditures

Explain costs to citizens more clearly

Adopt a more businesslike approach to managing solid waste

Develop a stronger position in negotiating with vendors

Determine an appropriate mix of solid waste services

Compare your costs with those of other communities

Fine-tune your programs to increase cost-effectiveness

Develop a sound system of user fees and charges to recover allthe costs of managing solid waste

Contingent Costs

Future remediation and liability costs that may or may notbe incurred. (Insurance premiums sometimes can besubstituted for liability estimates.)

Remediation Costs (undiscovered orfuture releases of contaminants to theenvironment)

Liability Costs (property damage,personal injury, or damage to natural resources)

(2) Your Total Items Included forContingent Costs

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Quiz 5

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Total Your Trash - Extra Credit Quizzes

I t is difficult to quantify environmental and social costs. Currently,there is no widely accepted methodology for calculating those costs.

However, if you are somehow factoring them in, check off the appropriate categories for extra credit.

Extra Credit Quiz 1

Extra Credit Quiz 2

FOR ROCKET

SCIENTISTS ONLY!

Environmental CostsEnvironmental costs include the costsof the resources used, pollutioncreated, and waste generated in providing solid waste management services. Upstream and downstreamenvironmental effects commonly aretermed “externalities” by economists.For example, the manufacture and transport of solid waste managementequipment and vehicles can entailupstream environmental effects beforesuch equipment is used, such asdepletion of nonrenewable mineralresources, air and water pollution, andgeneration of waste.

Environmental Degradation

Upstream Effects

Downstream Effects

(3) Your Total Items Included for Environmental Costs

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Social CostsSocial costs include the adverseeffects of solid waste manage-ment operations on people, theirproperty, and their welfare thatcannot be compensated throughthe legal system. For example,limitation of future land use, noise,odor, and traffic. Further, environ-mental justice issues can arise ifsuch burdens fall disproportion-ately on certain social groups.

Effects on Property Values

Image of the Community

Aesthetic Effects

Quality of Life

(4) Your Total ItemsIncluded for Social Costs

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Total Your Trash . . . The Final Score

Quiz 1: Up-Front Costs _____

Quiz 2: Operating Costs _____

Quiz 3: Back-End Costs _____

Quiz 4: Remediation Costs at Inactive Sites _____

Quiz 5: Contingent Costs _____

Extra Credit Quiz 1: Environmental Costs _____ Extra Credit Quiz 2: Social Costs _____

Total (possible high score, 32) _____

Review the quizzes to find out how you can improve your score byincluding the missing cost elements in your full cost accounting system.

Rank your score on the“Greenshade” Scale of Fiscal Responsibility!

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Getting Started

C ongratulations! By reading this booklet and taking the full cost accounting quiz, you have already started. Take the

next step by ordering a copy of Florida’s user-friendly Full CostAccounting Workbook for your accounting staff. Make sure yourfinancial folks add any cost areas that you were unable to check offon the quiz.

By taking the quiz, you mayhave discovered that youalready are the AlanGreenshade of Garbage andcurrently track most of yourcosts. For you, implementingfull cost accounting will be asnap and probably willrequire only minoradjustments to your currentcost accounting system. Onthe other hand, you may havefound that you really can’tidentify several of your solid waste management costs; someimportant factors are being left out of your calculations. Theworkbook will, however, show you how to calculate those costs andbuild them into an integrated full cost accounting system.

Although using full cost accounting actually is pretty easy, some effortmay be required to establish the procedures for collecting andquantifying the cost data you will need. However, the payback on thisinvestment is a more cost-effective and efficient waste managementsystem. By calculating the amount you actually spend each year tomanage solid waste, you will be able to establish an appropriate feestructure to recover the full cost of managing solid waste during theactive life of your facility. And, once you’ve gone through the process ofidentifying data sources and developing a reporting procedure,preparing next year’s full cost accounting report will be a breeze!

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For Even More Fun ...To obtain a copy of Florida’s new Full Cost Accounting Workbook,please clip the order form below and mail to DEP.

YES! Please send me a copy of Florida’snew Full Cost Accounting Workbook

Name:____________________________________________

Title:_____________________________________________

Organization:______________________________________

Address:__________________________________________

_________________________________________________

Phone No: ( )_____________________________________

Mail to: Florida Department of Environmental Protection Full Cost Accounting Program Solid Waste Section MS 4565 2600 Blair Stone Rd. Tallahassee, FL 32399-2400

Prepared in cooperation with:• Florida Associations of Counties• Florida League of Cities• Recycle Florida Today• SWANA Florida Sunshine Chapter