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Costs and Cost Analysis 75 TABLE 43 Total Costs provide treatment for former drug offenders. Based on the contract, the Juvenile Justice Department pays for the full cost of drug treatment but Total Costs by Department nothing for job training, which is under the jurisdiction of a different department. For budgetary and reimbursement purposes, HFA needs to Department determine the full cost and unit cost for drug treatment. The numbers in Administration $70,000 Table 4.3 (a simplified transposition of departmental costs from Table Fundraising 130,000 Drug treatment 600,000 4.2) are collected from a previous study you have conducted as HFA's Job training 350,000 financial manager. Total cost $1,150,000 Given the required accuracy for the purpose of this exercise, you have decided to use the step-down method. You are advised to start with administration, since all other departments require and receive services from administration, but not vice versa. Every department should be assigned a share of the administrative costs in the process of measuring the full cost of delivering the services, since every department benefits from the services of administration. You select departmental expenses as the basis for allocating costs. Your ratio- nale is that the more expensive a center is, the more help it needs from the cen- tral administration department. Even more precise allocation methods can also be applied, such as using full-time equivalent positions as the basis for alloca- tion. For our purposes of illustration, however, we use the simpler expense crite- ria. This allocation basis and allocation method are acceptable in practice by many nonprofit organizations. Costs and Cost Analysis 75 TABLE 43 Total Costs provide treatment for former drug offenders. Based on the contract, the Juvenile Justice Department pays for the full cost of drug treatment but Total Costs by Department nothing for job training, which is under the jurisdiction of a different department. For budgetary and reimbursement purposes, HFA needs to Department determine the full cost and unit cost for drug treatment. The numbers in Administration $70,000 Table 4.3 (a simplified transposition of departmental costs from Table Fundraising 130,000 Drug treatment 600,000 4.2) are collected from a previous study you have conducted as HFA's Job training 350,000 financial manager. Total cost $1,150,000 Given the required accuracy for the purpose of this exercise, you have decided to use the step-down method. You are advised to start with administration, since all other departments require and receive services from administration, but not vice versa. Every department should be assigned a share of the administrative costs in the process of measuring the full cost of delivering the services, since every department benefits from the services of administration. You select departmental expenses as the basis for allocating costs. Your ratio- nale is that the more expensive a center is, the more help it needs from the cen- tral administration department. Even more precise allocation methods can also be applied, such as using full-time equivalent positions as the basis for alloca- tion. For our purposes of illustration, however, we use the simpler expense crite- ria. This allocation basis and allocation method are acceptable in practice by many nonprofit organizations

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