Evaluating a Fee Structure for a Not-for-Profit Community Foundation: A Case Study on Activity Based Costing

Abstract

A case is presented focusing on a not-for-profit organization offering multiple services while having a costing base which is essentially fixed. At issue is determining a fee structure for the services provided. The organization is a community foundation acting as custodian and disburser of several endowments designated for differing purposes. To assist in determining an appropriate fee structure, an activity based costing (ABC) analysis is employed to allocate costs to the community foundation’s eight products. ABC provides an approach for allocating costs to products when costs are not directly or easily traceable to the products. This case illustrates an approach for allocation of indirect costs to cost objects. In turn, the measures of this resource allocation may be used in determining an appropriate fee structure. As noted by Warren (2015, 399), “many service companies are now using activity-based costing for determining the cost of providing services to customers.†The principles do, however, apply to other types of organizations which attempt to assign indirect/overhead costs more accurately to products. For all types of organizations, service or manufacturing, activity based costing techniques can be and are used to allocate overhead and indirect costs to products.