The
FUNdamentals of
Full Cost Accounting
Featuring your friend and
mine, that financial whiz of
waste … Alan Green shade !
Test your skill on the
“Total Your Trash” Quiz!
and
Don’t miss the harrowing
saga taking place at the
Yourtown Landfill
The Fun Starts Here!
Hi!
We’re from the Florida
Department of Environmental Protection (DEP), and we’re
here to help you. Yes, really, please
read on! We at DEP have resolved to
do all we can to explain full cost
accounting to local government solid
waste managers. As a first step, this
booklet will help explain the
objectives and benefits of using full
cost accounting for your solid waste
collection, recycling, and disposal operations.
Full cost accounting is a systematic approach for identifying,
summing, and reporting the costs incurred to provide solid waste
management services to a community. In addition to obvious and
direct costs, full cost accounting aims to include “hidden” as well as
“overhead” costs involved in solid waste management programs.
Find out how your
system scores
when you Total
Your Trash!
Use the score sheets throughout the booklet
to note the costs you consider to be part of
the full cost of solid waste management in
your community - and identify the ones you
might have overlooked!
Simply check off the costs you currently
include and add them up for each quiz,
giving yourself one point per item.
Although we can’t
promise hours of
unparalleled delight, we
at least hope to convince
you that full cost
accounting will so
greatly benefit you and
your community that
you will give it a try.
What benefits, you ask?
Well, there are many.
Full cost accounting
leads to more efficient
management of costs
and resources, and it
gives you ammunition
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for those political battles that seem to come with the territory of
managing solid waste programs.
Using full cost accounting data provided by local governments
throughout the state, DEP will prepare and issue an annual
comprehensive report. Using the report, you will see what other
communities pay for solid waste management - and maybe pickup
some tips on how to cut costs. While there is no guarantee that one
local government will reduce its costs by adapting the strategies used
in another community, the use of full cost accounting can provide
useful information for solid waste managers and their communities to
support sound management and planning. Local governments will
not be ranked, and the report will not be a “report card” on how
communities run their solid waste management systems. Like you,
we realize that cost is one of many factors that determine the
effectiveness of a solid waste management system, and that one
system can’t be considered better or worse than another simply
because one community has higher costs than another.
iz
The initial investments and expenses
necessary to manage solid waste. Check
off the costs you include in calculating
the “up-front” costs of solid waste
management.
1
2
Up-Front Costs
Qu
The “Total Your Trash”
Quiz in the pages of this
booklet will help you
evaluate your current
knowledge of full cost
accounting and assist you
in identifying costs you
might have overlooked in
determining the full cost
of solid waste management.
We realize that not all the
items listed will apply to
every local government.
Give the quiz a try
anyway and relate the
items listed to the solid
waste management
services you provide.
Planning
Land Acquisition
Permitting
Building Construction and Modification
(4) Your Total Items Included
for Up-Front Costs
What Is Full Cost Accounting?
F
irst of all, relax - full cost
accounting is not rocket
science. It’s really just the
application of basic cost accounting principles that can be highly
beneficial to you as a solid waste
manager. Full cost accounting
provides you with a valuable tool
for understanding and reporting
your community’s solid waste
management costs. For a variety
of reasons, most communities
and their citizens do not know
the real cost of managing solid waste, making it more difficult to
reach good decisions about solid waste management options.
Full cost accounting is not the same as cash flow or general fund
accounting, which is the most common method of government
accounting used today. In this system, outlays are recorded when
cash is actually paid out for goods and services. However, for
activities such as solid waste management, which often are funded
through user fees based on cost, cash flow accounting gives a
distorted picture of actual costs. As you are probably aware, not all
solid waste management costs result from current outlays of funds past and future capital outlays also contribute significantly to the
overall cost of managing solid waste in your community. Cash flow
accounting systems do not include up-front or back-end costs, such
as those for land acquisition and long-term care. Those systems also
do not take into account hidden costs, such as those for resources
donated for recycling programs that do not result in cash outlays.
All local governments can implement full cost accounting, regardless
of how they structure their programs and keep their books. Full cost
accounting uses generally accepted accounting principles to quantify
all direct and indirect costs, as well as “hidden” costs.
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Even when efforts are made to identify the costs of managing solid
wastes, it is easy to overlook costs that are lumped into “overhead”
or “indirect” accounts and should be recognized as direct costs.
Some costs that often are not included in establishing a rate
structure for solid waste fees are land acquisition costs, planning
Operating Costs
Qu
iz
2
The everyday expenses of managing solid waste. Check off
those “operating costs” you include in calculating the full cost of
solid waste management.
Personnel Wages, Salaries, and Benefits
Building and Vehicle Maintenance
Supplies
Insurance
Power and Fuel
Rent and Leases
Contract Services (including the cost of negotiating
and administering contracts)
Depreciation
Debt Service
Public Education and Outreach
Unexpected Costs (such as providing bottled water to citizens
whose wells are found to be contaminated from landfill leachate)
Indirect or Overhead Costs ((such as services provided by other
departments or time on solid waste issues spent by the mayor,
county administrator, and other elected officials)
Hidden Costs (such as donated supplies or services)
-
4
(13) Your Total Items Included for Operating Costs
and permitting expenses, costs
of closure and long-term care,
the cost of support services
provided by other local
government departments,
costs for negotiating and
administering contracts, and
an array of social and
environmental costs that can
be difficult to quantify.
Full cost accounting also
allows you to spread
(depreciate of amortize) significant capital outlays over the active
life of the facility. It is important to recoup those costs from tipping
fees while the facility is open.
Back-End Costs
Qu
iz
3
The expenses of properly closing down solid waste management facilities at the end of their useful lives, as well as the
costs of post-employment health and retirement benefits for
current solid waste employees. Because cash outlays for backend costs are not made until after the useful life of the facility
has ended, those costs are said to be “accruing” during the
active life of the facility.
Site closure
Building and Equipment Decommissioning
Long-Term Care
Retirement and Health Benefits for
Employees
-
(4) Your Total Items Included
for Back-End Costs
5
6
7
Why Should You Implement Full Cost Accounting?
A
lthough it should not be your primary reason for implementing
full cost accounting, the law in Florida requires that you
determine and report full costs. In 1989, the Florida Legislature
passed a law that requires local governments to report to the state
and to the citizens in your community the full cost of solid waste
management operations.
Remediation Costs at Inactive Sites
Qui
z4
The current cost of cleaning up contamination of soil, groundwater,
and surface water caused by inactive facilities such as closed landfills.
Investigation, Containment, and
Cleanup of Known Releases
Closure and Long-Term Care at
Inactive Sites
8
(2) Your Total Items Included for
Remediation Costs at Inactive Sites
A more compelling reason is self-defense. Garbage, as you are
probably aware from personal experience, can be a highly political
issue. Many state and local officials can attest to intense citizen
interest in municipal solid waste management. Full cost accounting
can help you make your case to the citizens and elected officials by
providing you with sound, objective financial data to backup your
decisions and recommendations. Determining what solid waste
management really costs can help you.
Accommodate the peaks and valleys in cash expenditures
Explain costs to citizens more clearly
Adopt a more businesslike approach to managing solid waste
Develop a stronger position in negotiating with vendors
Determine an appropriate mix of solid waste services
Compare your costs with those of other communities
Fine-tune your programs to increase cost-effectiveness
Develop a sound system of user fees and charges to recover all
the costs of managing solid waste
Contingent Costs
Qui
z5
Future remediation and liability costs that may or may not
be incurred. (Insurance premiums sometimes can be
substituted for liability estimates.)
Remediation Costs (undiscovered or
future releases of contaminants to the
environment)
Liability Costs (property damage,
personal injury, or damage to natural
resources)
-
(2) Your Total Items Included for
Contingent Costs
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Total Your Trash - Extra Credit Quizzes
I
t is difficult to quantify environmental and social costs. Currently,
there is no widely accepted methodology for calculating those costs.
However, if you are somehow factoring them in, check off the
appropriate categories for extra credit.
F
S C OR R
IEN
O
T I S CKE
T
TS
O
Extra Credit Quiz 1
NL
Y!
Environmental Costs
Environmental costs include the costs
of the resources used, pollution
created, and waste generated in
providing solid waste management
services. Upstream and downstream
environmental effects commonly are
termed “externalities” by economists.
For example, the manufacture and
transport of solid waste management
equipment and vehicles can entail
upstream environmental effects before
such equipment is used, such as
depletion of nonrenewable mineral
resources, air and water pollution, and
generation of waste.
-
10
Extra Credit Quiz 2
Social Costs
Social costs include the adverse
effects of solid waste management operations on people, their
property, and their welfare that
cannot be compensated through
the legal system. For example,
limitation of future land use, noise,
odor, and traffic. Further, environmental justice issues can arise if
such burdens fall disproportionately on certain social groups.
Environmental Degradation
Effects on Property Values
Upstream Effects
Image of the Community
Downstream Effects
Aesthetic Effects
(3) Your Total Items Included
for Environmental Costs
Quality of Life
-
(4) Your Total Items
Included for Social Costs
Total Your Trash . . . The Final Score
Quiz 1:
Up-Front Costs
_____
Quiz 2:
Operating Costs
_____
Quiz 3:
Back-End Costs
_____
Quiz 4:
Remediation Costs
at Inactive Sites
_____
Quiz 5:
Contingent Costs
_____
Extra Credit Quiz 1:
Environmental Costs
_____
Extra Credit Quiz 2:
Social Costs
_____
Total
R
(possible high score, 32) _____
eview the quizzes to find out how you can improve your score by
including the missing cost elements in your full cost accounting system.
Rank your score on the
“Greenshade” Scale of
Fiscal Responsibility!
11
C
Getting Started
ongratulations! By reading this booklet and taking the
full cost accounting quiz, you have already started. Take the
next step by ordering a copy of Florida’s user-friendly Full Cost
Accounting Workbook for your accounting staff. Make sure your
financial folks add any cost areas that you were unable to check off
on the quiz.
By taking the quiz, you may
have discovered that you
already are the Alan
Greenshade of Garbage and
currently track most of your
costs. For you, implementing
full cost accounting will be a
snap and probably will
require only minor
adjustments to your current
cost accounting system. On
the other hand, you may have
found that you really can’t
identify several of your solid waste management costs; some
important factors are being left out of your calculations. The
workbook will, however, show you how to calculate those costs and
build them into an integrated full cost accounting system.
Although using full cost accounting actually is pretty easy, some effort
may be required to establish the procedures for collecting and
quantifying the cost data you will need. However, the payback on this
investment is a more cost-effective and efficient waste management
system. By calculating the amount you actually spend each year to
manage solid waste, you will be able to establish an appropriate fee
structure to recover the full cost of managing solid waste during the
active life of your facility. And, once you’ve gone through the process of
identifying data sources and developing a reporting procedure,
preparing next year’s full cost accounting report will be a breeze!
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For Even More Fun ...
To obtain a copy of Florida’s new Full Cost Accounting Workbook,
please clip the order form below and mail to DEP.
YES! Please send me a copy of Florida’s
new Full Cost Accounting Workbook
Name:____________________________________________
Title:_____________________________________________
Organization:______________________________________
Address:__________________________________________
_________________________________________________
Phone No: ( )_____________________________________
Mail to: Florida Department of Environmental Protection
Full Cost Accounting Program
Solid Waste Section
MS 4565
2600 Blair Stone Rd.
Tallahassee, FL 32399-2400
Prepared in cooperation with:
• Florida Associations of Counties
• Florida League of Cities
• Recycle Florida Today
• SWANA Florida Sunshine Chapter