3. COST ACCOUNTING AND RATE DETERMINATION › 3.4 Direct Cost Determination

3.4 Direct Cost Determination

From an accounting standpoint, it is always preferable to
recover costs based on direct measurements rather than
overhead charges, because the overhead charges are based on
estimates.  Direct measurements eliminate guesswork and have
the additional benefit of continuing to maintain their
accuracy when usage varies as a result of system or
environmental changes.  To encourage cost management, the
accounting system uses direct costing as its primary costing
method.
 
Direct data processing costs are categorized as direct labor,
direct hardware, and direct materials.  The load center to
which these are assigned depends on the structure of the IS
organization.
 
Whenever personnel work exclusively for one load center, the
labor dollars are assigned to that load center.  For example,
computer operators are assigned to the CPU load center, tape
librarians to the tape load center, and a DASD space manager
to the DASD load center.
 
The accounting system can also assign a management position
to a direct load center if the position is assigned solely to
the load center.  A first-line manager in the tape library
whose work is solely concerned with the tape load center can
be costed to the tape load center.  Managers whose work
supports several load centers should be assigned to an
indirect load center.  If you have information from a time
reporting system that permits time breakdowns among load
centers, you can use it to apportion labor costs for those
personnel who support several load centers.
 
The load center distribution of direct hardware and software
costs are best derived from a product such as CA-I/S
Inventory and Assets Manager.  Whether manual or automated,
as a product enters the organization it should be tracked as
to its use among the different load centers.  Most products
will have one load center to which they belong.  Others will
have to be distributed as an indirect cost.
 
Materials such as tapes and other supplies can also be costed
directly to the load center using them, or, if their use is
not directly attributable to one load center, to an indirect
load center.