A full overhead cost model for the U.S. Coast Guard Yard, Curtis Bay, Maryland
Breen, Michael F.
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This report examines the effect of including real property depreciation in the U.S. Coast Guard's overhead costs. The following accounting concepts are discussed as to the nature and appropriateness to the Yard's accounting: asset valuation, useful life determination, depreciation and asset capitalization criteria. Two methods of overhead allocation are presented and contrasted. The first method is currently used by the Yard and the second is a proposed replacement. A $1,000. capitalization threshold is proposed to replace the current $200 threshold. The real property assets are depreciated on the basis of their historical cost and by the straight line method. Their depreciation costs are distributed to the appropriate cost centers. From there the costs are allocated to overhead by both allocation methods. The effect of a $1,000 capitalization threshold is then added in to the calculations. A new rate structure is computed twice for both allocation methods: at the current capitalization threshold and at the $1,000 capitalization threshold. The four concurring rates are applied to sample Yard projects to contrast their effects on overhead costs. This report concludes that information based on historical cost is irrelevant due to inflation. A recommendation is made to use current cost, which would produce more useful information to determine the current operating costs of the Coast Guard Yard.
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