Streetsmart Financial Basics for Nonprofit Managers

Chapter 9Cost Accounting: How Much Does It Cost?

How much does it cost to provide your services? There are many answers. But the one thing that all responses to the question have in common is that they must first answer the equally important question, “Who cares?”

The theoretical answer to this resonant question is easier than the practical one. Speaking from the moral high ground, everyone connected with a nonprofit has a reason for caring about the cost of services in order to make sure that they are delivered as efficiently as possible. Certainly, boards of directors should know the true cost of services as part of their fiduciary responsibility.

In practical terms, however, the real answer to the question, “Who cares?” is rooted in economics rather than in the public good. Historically, some nonprofits must care a great deal about the cost of their services, while others feel little economic pressure to do so. Beginning with the Great Recession in late 2007 , it is safe to say that virtually all nonprofits have had to pay more attention to this area.

For any nonprofit, there are many reasons beyond the moral and narrowly financial to have some type of cost accounting information. To the extent that any proposed programming resembles an existing service, it is always extremely helpful to have cost information while building a planned budget. Cost information allows comparisons between services both inside and outside of the nonprofit organization. It can also be useful for ...