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The name of the organization under consideration is Bill and Melinda Gates Foundation. The organization is involved in offering philanthropic work to various social and science activities. Before identifying relevant costs I will need to define what are relevant and irrelevant costs. Relevant cost is the expetected future cost that differs among alternative course of action under consideration. This means a relevant cost is future cost that affects a decision making while selecting, it must also differ among the altertenative course of action. If cost does not differ among the courses of action meaning it does not matter to the decision then it is irrelevant cost.
In these case study relevant costs has been identified as direct charitable expenses and program and administration expenses directly attributable to the programs to be undertaken. Depreciation charged is an relevant cost as well allocated general overhead. Allocated general overhead will be incurred whether the decision is made to increase funding to HIV/ AIDS, Malaria, Tuberclosis and Housing these four costs have been analyzed together with the released funds as shown below:
The organization was making a decision as to whether change funding structure of the different philanthropic activities or do away with some. Depreciation and Federal excise & other taxes are costs that have been allocated to the programs but are incurred whether programs exist or not.. Thus they not directly associated with the programs. Therefore, they are irrelevant to this particular decision and thus will not be considered when making this decision. The relevant costs will be direct charitable expenses and program and admin expenses.
After considering relevant cost, the decision is not to adjust the current funding or do away one activity since all of them have a positive contribution that adds to the assets.
The performance of a fund manager responsible for running a program will be measured using these costs as calculated that is excluding irrelevant. This is because a manager should be held responsible for the costs that are under their direct control. These costs are at his control and he can freely to make a decision about increasing or decreasing.
In this case federal taxes and depreciation becomes irrelevant costs since they are allocated. Direct charitable and program expenses are relevant cost. The costs that are relevant must different in the options, those cost that are uniform are irrelevant costs. Lastly, qualitative and quantitative factors should be considered in decision making.
References
Drury C; (2000); Management and cost Accounting; business press Thomson Learning,
Horngren C. T. , Datar S. M and Foster G. (2003); cost Accounting: A Manager emphasis, Prentice Hall.
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