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Unformatted text preview: rchandising organizations will make an effort to allocate these items to their products so as to obtain the “full
cost” of each product sold.
In situations where a “third party payer” pays on the basis of cost, an organization usually must calculate its
full costs according to certain guidelines. The organization then must submit the resulting cost report to the third
party before receiving payment.
This sort of requirement by an oversight organization happens in many instances where the government reimburses an organization’s costs. For example, when the government contracts with a university to do research, the
university’s reimbursement must be in accordance with the principles set forth in the Office of Management and
Budget’s Circular A-21, Cost Principles for Educational Institutions. These principles provide for direct costs
plus “an equitable share” of overhead costs. Overhead costs include a use allowance for depreciation of buildings
and equipment, operations and maintenance of plant, general administration, departmental admin...
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- Spring '14