Note: Sample below may appear distorted but all corresponding word document files contain proper formattingExcerpt from Term Paper:
Stadium Jumps" the writers discuss the cost of building a baseball stadium and renovating Robert F. Kennedy memorial stadium in Washington, D.C. The cost analysts note that the original cost estimate for the project was too low, and that the actual costs of completing the project could be as much as $91 million dollars more than originally anticipated. D.C. councilmen overseeing the project expect that the total costs for the project could climb as high as $486 million dollars, a problem as the original cost estimate was less than $400 million.
The cost estimate is off because it did not account for additional costs with regard to improvements for roads surrounding the stadium, addition of sewers and Metro routes, the money necessary to completely renovate the stadium and more than $30 million dollars in contingency funds for "the likely cost of overruns."
The problems associated with the poor cost estimate are many, including the need for heavy borrowing and an increase in debt service. The increased costs over and above the original cost estimate also do not include $40 million dollars in additional financing costs according to city officials.
One important aspect of cost estimation is determining whether or not the benefits of incurring costs outweigh the actual costs themselves. In the article city officials comment that they expect that in order to justify the added expenditures, it would be necessary for the city to raise more than 2 million additional dollars in revenue every year via gross tax receipts in order to pay off the debt. Many suggest in the article that the investment will eventually result in a net loss as the costs are likely to continue to "spiral upward with no end in site." Some have suggested that the plan is at best fiscally irresponsible.
In the article the cost estimate is one that will affect tax payers, thus the author suggests that a public hearing on financing legislation will be necessary to resolve the issue. Among the plans suggested for raising revenues including creation of a community investment fund that would be equivalent to $400 million in expenses, which could be used to among other things renovate schools and parks, by "harnessing the economic energy generated by a new baseball stadium."
The authors note that at this point in time it is not clear whether or not the city will be able to generate the revenues necessary to meet the new cost estimate.
This article was very well researched and grounded, revealing the many problems associated with improper cost estimation and analysis. It suggests the importance of noting all 'hidden' costs and allocating funds for unforeseen expenses when generating a cost estimate for any type of long-term or lengthy project. In this particular cost estimation project, the city officials basis for the initial project cost estimation were interviews conducted with officials from the D.C. sports entertainment commission, along with the D.C. Department of Transportation, Metro, and the Water and Sewer Authority.
The article would have benefited from comparisons of other cost estimates from similar projects so the reader could get a feel for the nature of the deal described. The author did suggest that the officials conducting the cost estimation reviewed previous large projects including creation of the Washington Convention Center and other stadiums, but did not provide details with regard to similar cost estimates thus did not provide enough detail to determine whether these comparisons were valid or accurate.
In the article "Life-Cycle Cost Analysis -- Evaluation and Investment Team" Keith Goodman discusses the process of life-cycle cost analysis, which involves evaluating the total economic worth of a usable project segment by "analyzing initial costs and discounted future costs ... over the life of the project segment." The author argues in favor of a life cycle cost analysis approach suggesting it is the best method for analyzing costs over time and assessing the overall value and benefit of a project, service or other commitments.
According to the author within the transportation department of the federal government, officials are increasingly under pressure to demonstrate the benefit of their services to taxpayers. The best way to do this according to the author is through life-cycle cost analysis. Thus many transportation agencies are investigating methods for justifying expenditures and looking at tools that can help them better determine what purchases are the most cost effects and which will benefit the public the most.
The author suggests that a life-cycle cost analysis, referred to as "LCCA" is the best approach for the Federal Highway Administration to deliver a proper synopsis of expenditures and evaluate the best ways to spend taxpayer investment. An LCCA offers the department a tool for considering all of the agency expenditures and costs over time as opposed to only during the initial investment period. The LCCA also offers the department the opportunity to determine and demonstrate the benefits of a particular service or alternative service in an economically sound manner.
Further according to the article a cost analysis will allow a structured approach to determining the costs of items over their lifetime, improving the department's ability to communicate with the public. The author closes by defining the steps of the life-cycle analysis process and the specific methodology steps to be employed by the transportation department should they adopt a life-cycle cost analysis methodology.
This article was very well grounded and described in adequate detail the life cycle cost analysis process. Most enlightening was the detailed analysis of the life-cost analysis process. The author provided a step-by-step analysis of how the LCCA works. First, he suggests that project teams use the LCCA process to "define a reasonable design or preservation strategy alternatives." Next the LCCA process would allow the team to identify initial construction activities and future maintenance activities for a particular project. From the information gathered a schedule of activities for each project alternative can be collected and assessed. Activity costs would be estimated based on the activities determined for each specific project.
The LCCA tool would allow estimation for direct agency expenditures including construction or maintenance activities, as well as user costs that might result from work zone activities. The objective of the process according to the article is to determine what the total life cycle costs are for each project alternative, as well as anticipated future costs so that potential investors have the opportunity to determine which project is best suited for minimizing expenditures and maximizing benefits over time.
The author also touches upon outreach programs that are also focusing on the application of LCCA to other projects and departments. Among the projects mentioned include a life-cycle cost analysis in pavement design. The steps outlined for successful implementation of an LCCA include establishment of alternative design strategies, activity timing, estimation of agency and user costs and determination of life cycle costs over time.
One thing the article did not discuss was actual examples of instances where LCCA had been used in other departments or other federal agencies successfully. The author makes a very clear case and is able to demonstrate the benefits of a cost analysis for predicting costs over the life cycle of a project. The argument would have been strengthened by some grounded examples of use of cost analysis in live situations.
In her article "Activity-Based Costing: "What Is It and How Can Reengineering Teams Use It" Nancy Maluso discusses the basics of activity-based costing (or ABC) and then offers a discourse on how it can be used to help reengineering teams. Specifically the author suggests that reengineering teams can use ABC to determine the costs and benefits associated with specific re-engineered processes and systems.
The author begins by defining activity-based costing as an "accounting methodology" that can be used to assign costs to activities instead of products or services. This is beneficial according to the author because it allows overhead costs and resource costs to be correctly assigned to the services or products that actually use them.
Maluso offers a graphic comparison of traditional costing methods vs. The ABC method, showing exactly how the ABC method can provide information about how costs are consumed. It doesn't according to the author, change or eliminates any of the costs one is likely to incur; rather it assigns costs to very individualized and specific activities so that the purchaser has a better idea of where money is being spent and what actions might be necessary to reduce costs in the long-term.
Maluso claims that traditional accounting systems are not accurate because they do not allocate costs correctly. Further the author suggests that high volume products and services may actually incur a large percentage of overhead costs but these costs aren't actually assigned correctly. Maluso goes as far as claiming that small batch and low volume products actually incur anywhere from 200 to 1000% more overhead than what is actually assigned them. Her analysis is used to justify the notion that products and services that a company might…[continue]
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Activity-Based Costing and AIS Activity-Based Costing (ABC) is an accounting method that identifies the activities a company carries out and then assigns indirect costs (overhead) to products. Activity-based costing shows the relationships between the activities, the costs, and the products, and correctly associates the lion's share of the resources used with the actual production or provision of services. The recognition of these relationships enables the indirect costs to be assigned to products in
ABC can identify high overhead costs per unit and find ways to reduce the costs, avoid decreases in head counts due to inaccurate allocation of costs, and measure profitability with higher accuracy than traditional costing that uses direct-labor hours as the only cost driver (Activity-based costing, n.d.). Bibliography Activity-based costing (ABC). (n.d.). Retrieved Apr 2, 2009, from Managers-Net: http://www.managers-net.com/activityBC.html Activity-based costing (ABC): What is it and how can reengineering teams use it?
organization applicability Activity-Based Costing (ABC). CISCO Corporation. Identify a product service organization ABC. You technique selling administrative costs. Then identify activities ABC cost drivers activities. Activity-Based Costing at Cisco Cisco Systems is one of the largest global corporations. It is headquartered in San Jose, California, and it employs over 70,000 individuals. The organization manufactures consumer electronic goods, as well as other types of product and services, such as the networking or
Activity-Based Costing in a Service-Based Organization Activity-Based Costing operates on the conventional approach and applies a two-stage allocation instruction and other cost drivers. First, the system identifies the important activities and overhead costs assigned to each activity in proportion to the resources used. Consequently, for each of these cost pools, cost drivers are identified. Secondly, the assumed overhead cost driver is assigned proportionally to the final outputs of the cost
Many organizations have sufficient control over their cost drivers, specifically those that work with activity-based costing; these companies can locate a sufficient amount of cost information within the company to accomplish these analyses in a timely fashion (Chatzkel, 2003). In reality, though, ABC systems are typically structurally complex and, in spite of the need for complete integration of such ABC systems, many such systems remain as stand-alone analysis tools
The applicability of Activity-Based Costing for decision making is directly linked to the influences that ABC has over process control. In this order of ideas, by better identifying the incurred costs or the overhead, managers can better monitor and control the evolution of products, prices, costs and consequently, profits. ABC identifies the costs incurred by each item in terms of resources consumed. Therefore, with the aid of ABC, organizational managements
Managerial Analysis R&D activities fall into four pools with the following annual costs. Market analysis $1,050,000 Product design 2,350,000 Product development 3,600,000 Prototype testing 1,400,000 Total Activities Cost Drivers Estimated Drivers Market analysis Hours of analysis 15,000 hours Product design Number of designs 2,500 designs Product development Number of products 90 products Prototype testing Number of tests 500 tests (a) Compute the activity-based overhead rate for each activity cost pool Activity-based overhead rate = total budget overhead / basis = 1,050,000 / 15,000 = $70