5.4 Bases and methods of assigning costs to outputs
5.4.1 Introduction
The Government allocates resources to departments on the basis of their outputs. Departments must estimate, accumulate and report output costs in a manner consistent with this method of resource allocation.
5.4.2 Assigning expenses
When estimating, accumulating and reporting output costs for external financial reports, departments must assign all operating costs (that is, both direct and indirect costs) to outputs. They must not assign "other expenses", as defined in the Act, and as further discussed in section 6.4 of these Instructions ("Departmental other expenses") to outputs.
5.4.3 Attributing direct costs
Direct costs that are attributed to outputs must be based on actual consumption. Pre-established bases or ratios may be used, if departments are able to prove these fully represent actual consumption.
5.4.4 Allocating indirect costs
Where services are provided to more than one output at the same time, the cost must be divided and allocated to each output in reasonable proportion to its actual consumption.
Departments may accumulate indirect costs into “homogeneous” cost pools. An indirect cost pool is “homogeneous”, if the activities whose costs are included have similar causal relationships to the production of the outputs.
Departments must allocate indirect cost pools to outputs by appropriately measuring resource consumption.
Pre-established rates may be used in allocating indirect cost pools, if departments can prove that these fully represent actual consumption.
5.4.5 Pre-established rates
When a department uses pre-established rates to assign direct and indirect costs to outputs, it must have a written policy for establishing the rates. The rates must be reviewed at least annually, and revised to reflect the anticipated conditions. If the revision occurs during a cost accounting period and there are significant variations, the costs assigned to that period must be adjusted to the amounts that would have been allocated using the revised rates.
