ASME Cost Accounting

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ASME Cost AccountingASME Custodian Funds
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ASME Cost Accounting
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Cost Accounting Initiative

• Full cost accounting has been tentatively
  identified as Balanced Scorecard Initiative
• At present, ASME
• Does not allocate GA
• Does use service charges
• Leaves allocation of direct indirect charges up
  to Councils

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Cost Accounting

• Advantages
• Better idea of full cost of products services
• Prices will presumably reflect full costs
• Better management of internal costs
• Leads to good decision making

• Disadvantages
• Takes time away from essential duties
• More accountants
• Laden with arguable assumptions
• Gaming
• Human paradox
• Leads to bad decision making

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Cost Accounting Dilemmas

• Contribution Margin Example
• A division of a company can produce a product and
  sell it at a cost of 80/unit at a sales price of
  100/unit. The overhead charges would amount to
  40/unit. Should the division make the product?

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Cost Accounting Dilemmas

• Transfer pricing
• Division A can buy a needed part more
  inexpensively than Division B of the same company
  would charge for the same part. Should Division
  A buy it from the outside?

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The Issue Balance

• Precision
• Simplicity

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Definitions

• Definitions are flexible, and may vary by
  organization
• Well review ASMEs definitions of
• GA (SGA)
• Direct
• Indirect
• Service Charges

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Definitions

• Being in one category (direct, indirect,
  overhead, etc.) or another does not make a cost
  more or less legitimate.
• Example Is a consulting charge more legitimate
  because it is a direct expense compared to a
  staff expense, which may be an indirect
  allocation?

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GA

• General Administrative
• Includes BOG Governance, Accounting, HR,
  Executive Operations, Legal Audit
• Also includes Honors Awards, LAN/WAN, and
  Centralized Marketing
• Is about 18 of all other expenses

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Direct/Indirect

• Direct
• Usually vendor charges, production, postage, food
  beverage, travel
• Sometimes includes staff, facilities, etc.
• Indirect
• Usually includes facilities, telephone, staff
• Hybrid
• Some costs may be either direct or indirect

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Service Charges

• Certain services are centralized and charged
  based upon usage (Service Charges)
• Warehouse, Facilities, Office Services,
  Information Central, Marketing, IT, and more
• Costs are charged based upon cost drivers (ABC
  Activity-Based Costing)
• Successes
• Failures
• Misunderstandings
• Service charges can be direct, indirect, or part
  of overhead

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Preliminary Full Cost Accounting Timeline

• Full cost accounting is a Balanced Scorecard
  initiative not yet approved by Board
• For FY 04 we are moving in the opposite direction
  temporarily to reduce confusion during the
  reorganization and development of the FY 05
  budgets
• New, equitable and consistent accounting model
  Society-wide to be developed during FY 05 for
  application in FY 06
• Methodologies TBD with input from users

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Methodologies

• Allocation percentages
• Standard Costs/Activity Based Costing

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Methodologies

• Allocations/Costing based upon
• Head count
• Revenue
• Expense
• Floor space
• Usage/Cost Drivers
• Judgment
• Time sheets

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ASME General Fund Margins by Council
FY 2003 Actuals GA Distributed as of expenses
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Conclusions

• Full cost accounting has its advantages and
  disadvantages
• It will provide some answers, but also raise more
  questions
• Used properly, it can provide some insights
• Used improperly, it can lead to reactive,
  short-sighted mistakes that will hurt the
  organization

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ASME Cost Accounting
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ASME Custodian Funds
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Custodian Funds

• ASME funds under the stewardship of an ASME unit
• Funds to be utilized for ASME-approved activities
  and governed by ASME Policies, By-Laws, etc.
• See Policy P-2.1

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Custodian Funds

• How much is out there in Custodian Funds?

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Custodian Fund Balancesas of June 30, 2003
000
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Custodian Funds

• From where did the money come?

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General Fund Net Surpluses/Subsidies
FY 02-03 Actuals FY 04 Forecast as of Jan 04
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Custodian Funds

• Sources
• Revenue sharing
• Appropriations
• Events

• Uses
• Unit operations
• Scholarships
• Growing balances

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Issues Questions

• What is the purpose of Custodian Funds and
  Appropriations?
• Why the uneven distribution in favor of COE?
• What if Codes Standards had significant
  Custodian Funds?
• How do Custodian Funds affect My ASME?
• How can Custodian Funds be a win-win?
• How do Custodian Funds affect ASMEs ability to
  manage market and product life cycles?

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• The importance of money flows from it being a
  link between the present and the future.
• John Maynard Keynes

Source Innovation Entrepreneurial Index,
Innovation Philadelphia
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BCS Matrix
HIGH
Question Mark
Star
Growth
LOW
Cash Cow
Dogs
HIGH
LOW
Market Share
Source Boston Consulting Group
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BCS Matrix Definitions/Strategies

• Stars
• High income high growth future cash cows
• Keep them and develop more
• Cash Cows
• High income and low growth will become dogs
• Milk them

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BCS Matrix Definitions/Strategies

• Dogs
• Low growth low income cash drain with no
  future
• Shoot them
• Questions Marks/Problem Children
• Low income/market share of a high-growth market
  a cash drain
• Improve margins or market share or accept defeat

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BCS Matrix
HIGH
Question Mark
Star
Growth
LOW
Cash Cow
Dogs
HIGH
LOW
Market Share
Source Boston Consulting Group
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• How can ASME best manage the Matrix?
• ASME is asking for your help.

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ASME Custodian Funds