Indianapolis: Activity-Based Costing Essay

1- Yes, government should perform a court analysis before privatization, peculiarly if the government will remain as a participant in the call downding process. The follow analysis will turn in the government with cost information for accurately pricing the bid. In case the government is non going to be a participant in the bidding process, the cost enumerate will provide the government with an envision on how practically to pay for a service. For example, if the government wants to engage in a unanimous fixed price contract, a cost analysis will provide an accurate estimate of the cost and government can adjust the estimate for labor contractor rates and profit to price the contract.2- For chuckhole modify activity direct labor and materials argon relatively easy to hound directly, but it is more difficult to allot indirect cost to the service. In order to apply alphabet in Department of Transportation, reconciling with masterys records, the team correctly identified in phases 1 and 2 all the basic activities. There were 35 activities, one of them being pothole patching. The labor hours and direct materials assigned for this activity were easy to be traced so the direct labor and materials were precisely determined in the pothole Filling Cost table.A few comments about the command processing overhead costThe model allocated costs for fixed assets and unused equipment, which is one of the strengths. The model alike adjusted the current year capital purchases and added back the depreciation (the consumed mess of the purchase price). We think that was an appropriate decision in order to hold back a true cost for this activity. The metropolis already had an accounting musical arrangement to trace the depreciation, and that was an advantage.It is debatable the decision not to include the headquarters expenses. In fact those costs may vary up or cut back depending on who does the pothole filling municipal workers or private contractors. purp ose was that these expense to remain in the city but they dont necessarily have to. A truecost for the service would be to allocate them in the overhead costs.It is a bit unclear if the overhead costs captured in the Pothole Filling Cost table atomic number 18 strictly associated with pothole filling activity. We know that the team identified the indirect and support costs associated with the 35 primary activities. It is difficult merely to allocate those costs to pothole filling activity only. For example how much would be Facility Expense slice for this service? We should assume that a sure allocation method was utilized, since the other 34 activities should also have overhead costs traced for other potential bids.Regarding overhead costs allocation by region, a brief calculation reveals that some sort of allocation was utilized for costs, however it is not clear on what basis. Four fixed costs out of seven do follow the same allocation pattern, however that allocation does no t follow the tons filled ratio.We should also bankers bill that the model analyzed the cost occurred during winter months, in order to put together a bid for spring. If pothole filling is a season precise activity, the actual costs could be slightly different and the bid should be adjusted accordingly. Maybe a better idea was to apply the alphabet model considering actual costs incurred during the previous spring.3- Yes, letting the municipal employees turn over the rudiment estimates and freehand them the opportunity to reduce their costs was a safe(p) practice as it provided several benefits. Due to several past factors, the citys departments had been operating on a less than optimal take aim and had high overhead costs. For example the supervisor to worker ratio was overly high, and the department of transportation carried excessive capital assets (vehicles). Sharing the ABC estimates and giving the opportunity to reduce costs allowed them to improve efficiency. The mun icipality was able to pinpoint the conundrum issues and fix them, such as half the supervisors were dismissed. This would allow the city to be competitive with the private sector in the bidding process.ABC estimate sharing provided an additional benefit as a buy-in from theemployees and the union. As the employees and the ABC estimators worked together to generate the estimates, they realized the data was showing the problems that they did not prefigure such has the high supervisor ratio. They recognized that ABC will be very essential for them to lower their costs and become competitive. The employees needed to be competitive with the private sector to keep their jobs.4- We will assume that the validating Cost Pool includes supervisors expenses (which should be reduced by 50%) and overhead costs. In this case the bids for Northwest and Northeast quadrants are calculated in Exhibit B. Comparing with the actual pothole register costs per ton in January-March, we could clearly see a prominent decrease of indirect costs and rolling stock costs. Overall the bid for both quadrants is by far more competitive than it would have been without the ABC analysis and cost reduction.5- If the administration continues to outsource city services by means of competitive bidding and assuming the private sector is able to sharply under bid the city, the administration will have to dismiss the light(a) workforce, selloff unused fixed assets and update the ABC estimates accordingly. As the number of outsourced contracts grows in count and size, the administration will also need to enhance its detection and performance management capabilities.