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OCR for page 19
Transportation Accounting Fundamentals 19 Materials and supplies. General administrative expenses (including indirect organizational costs, if applicable). Utilities. Casualty and liability costs. Taxes. Miscellaneous expenses. Leases and rentals. Capital expenses. Depreciation and amortization. Each expense category should have detailed subcategories. For example, the category "labor" could have separate entries for drivers, administrators, dispatchers, and mechanics. Some trans- portation operators have separate expense categories for salaries paying for training or overtime. Other expense categories that may be useful in certain conditions include Indirect Expenses (for multi-service agencies providing transportation and other services), Expense Transfers, and Interest Expense. (The major components for a uniform chart of accounts are identical to those in components listed in FTA's National Transit Database category titled "Expenditures.") Used together, the 13 categories of expenses fully describe all costs of transportation services. It is important to recognize that not all federal funding programs recognize all of these categories as allowable expenses under their specific funding legislation or regulations. Different Kinds of Costs When using a full cost accounting approach, transportation providers should understand that costs may be expressed in a number of different ways. The costs of transportation services may be considered as Fixed versus variable costs. Capital versus operating costs. Direct versus shared costs. Each of these paired concepts (e.g., fixed versus variable costs) is an expression of 100 percent costs of providing transportation services. Each of these paired concepts has its own value in under- standing how costs are incurred and, therefore, how to better manage transportation services. In addition, the distinction between capital and operating costs has a significant effect on funds avail- able and on reporting requirements. Local transportation providers have some flexibility in assigning expenses. Because there are no hard and steadfast rules for assigning expenses, good judgment and an understanding of how expenses are incurred are needed. A good expenses assignment should be Logical and understood by all. Defensible and able to pass scrutiny from an outside observer. Clearly expressed in writing. Consistent so that it is useful for watching cost trends over time. Various methods for assigning expenses can be used, provided that they meet these objectives. Fixed versus Variable Costs Variable costs are those that CHANGE with the amount of service provided. These expenses typically include driver wages, fuel costs, and maintenance costs. The more miles and hours of service provided by the transportation service, the greater the costs of that service.

OCR for page 19
20 Sharing the Costs of Human Services Transportation Fixed costs are those that DO NOT CHANGE according to the amount of service provided. In most systems, this means that modest changes in the numbers of hours or miles of service will not result in corresponding changes to the fixed costs. Fixed costs typically include such items as administrative salaries and facility depreciation. Thus, variable costs are highly dependent on the amount of service provided, while the fixed costs should remain relatively constant from year to year. The distinction between fixed and variable costs is extremely useful in understanding the costs of transportation services, as well as being highly useful for budgeting, managing, and billing pur- poses. The primary assumption of our Cost Sharing Model is that each line item expense is either a variable cost or a fixed cost. This is sometimes called a two-variable, fully allocated cost model. More information on the Cost Sharing Model is presented in Chapter 8. Variable costs can be logically linked to either one of two service variables: hours or miles. For example, the number of vehicle hours is directly related to most of the operator labor costs because driver expense is a function of the amount of time that vehicles are in operation. The number of miles accounts for most maintenance labor and materials costs as well as the cost of fuel consumed and vehicle depreciation. Fixed costs are the expense items that do not vary with the number of miles or hours of oper- ation but, instead, reflect the scale or size of the agency. Examples include administration and building rents. The total cost of providing transportation service equals the sum of all fixed and variable costs. Capital versus Operating Costs Capital costs refer to the expenses associated with long-term acquisitions and leases of phys- ical assets, such as vans, buses, garages, and maintenance facilities. These assets often are quite expensive and have a physical or functional life that extends several years. Each year, these assets lose value. This loss in value is known as depreciation, which sometimes also is called the annual cost of capital. From a grant program perspective, allowable depreciation costs may include only the cost actu- ally incurred by the transportation operator for the purchase of the asset; federal or state grant funds may not be depreciated. If no grant funds were used, the total cost of the asset is used to calculate the depreciation cost. It is important for transportation providers to consider depreciation costs when determining the correct price for their services (see Chapter 7 for more information). Including depreciation costs is a consistent and equitable way to recover the costs of replacing capital assets and save toward future replacements. It avoids the common problem of making special requests to funding agen- cies every time capital purchases are needed. Operating costs refer to those expenses that are consumed in a single calendar or fiscal year to make the transit system operate. These expenses include labor, fringe benefits, materials and sup- plies (e.g., fuel), maintenance, office space, and equipment--all of which are essential to operating transportation services. Administrative costs are a kind of operating cost. They always must be considered; they may be most difficult to quantify in the case of a multi-purpose human service agency that provides trans- portation services as one of the agency's many functions. Administrative expenses are those used to support an agency or program so that it can per- form its basic functions (like providing transportation services). Administrative costs cover func-