This document summarizes topics covered in Week 12 of the ACCT101 Accounting and Financial Management course, including accounting for activities with joint costs and indirect cost allocation. It discusses two accounting situations involving a not-for-profit organization: 1) an informational activity that contains a fund-raising appeal, and 2) indirect cost allocation to determine the full cost of program activities. For the first situation, it outlines the AICPA criteria that must be met to allocate costs between the informational and fund-raising components. It then describes three allocation methods that can be used to allocate joint costs: the physical unit method, relative direct cost method, and stand-alone cost method. For the second situation, it defines direct and

1. ACCT101 Accounting and
Financial Management
Week #12
ACCT101-Slide 1

2. WEEK 12 - TOPICS
• Accounting for Activities with Joint Cost
and Indirect Cost Allocation (Chap 5)
• Direct and Indirect Allocation
• Status of the Course Project
ACCT101-Slide 2

3. Accounting for Activities with Joint Cost and
Indirect Cost Allocation
Accounting Situation: A Cost Incurred by a
Not-for-Profit Organization Relates to Two
Different Activities
• Situation #1: An Informational Activity
Contains a Fund-Raising Appeal
• Situation #2: Indirect Cost Allocation to
Determine Full Cost of Program Activities
ACCT101-Slide 3

4. An Informational Activity Contains a
Fund-Raising Appeal
• Guidance provided by the AICPA Statement of
Position No. 98-2, “Accounting for Costs of
Activities of Not-for-Profit Organizations and State
and Local governmental Entities That Include
Fund raising”
• Criteria
-Criteria must be met before any costs can be
allocated. If the criteria are not met, the entire
cost of the activity is classified as fund-raising
activity.
ACCT101-Slide 4

5. An Informational Activity Contains a Fund-
Raising Appeal Criteria
Criteria Permitting Cost Allocation
• Purpose Criterion
Program Functions
Program Functions and Management and General Functions
• Audience Criterion
Audience Selection Reasons
• Content Criterion
Program
Management and General
ACCT101-Slide 5

6. Allocation Methods
• Physical Unit Method
Cost allocated based on the physical material that make up the
joint cost (See page 117)
• Relative Direct Cost Method
Joint costs are allocated in relation to the direct costs of each
of the activities (See page 118)
• Stand-alone Cost Method
Joint cost is allocated to each components of the joint activity in
the ratio that estimates the costs that would have been incurred has the
joint activity been performed separately (See page 118).
ACCT101-Slide 6

7. Indirect Cost allocation Plans
• Direct Costs-those expenses that can be specifically
attributed to a particular activity
( examples- salaries, supplies)
• Indirect Costs-all the expenses that are not direct costs
( examples-rent, utilities)
Approach-if administered under a particular contract or
grant
-indirect cost allocation acceptable to other party
-consistent and reasonable approach
Note: There are specific federal cost requirements for
grants under federal programs.
ACCT101-Slide 7