Cost allocation is one of most difficult tasks in total cost estimation. The use of cost base in cost allocation determines the accuracy of calculation. Two types of measures are often used as cost base. Measures of resource consumption include measures of time spent (e.g., “the number of hours”) or manpower used (e.g., “FTE”). Such measures are readily available, so they are inexpensive to use. However, it should be understood that the cost is always associated with an activity of providing a product or service. Scholars sometimes call an activity measure “output measure.” Following is a list of “output” cost bases for distribution of administrative or office expenses.

Accounting cost—the number of invoices processed Purchasing cost—the number of purchase orders processed Printer cost—the number of reports produced Utility—square feet of space assigned Telephone—the number of calls made Vehicle—the number of miles used Identify three administrative or office cost items in a governmental agency.

Develop two possible cost bases for each cost item.