cost allocation sponsored by: california association for coordinated transportation presented by...
TRANSCRIPT
Cost Allocation
Sponsored by:
California Association for Coordinated Transportation
Presented by
Rich Garrity, Senior AssociateRLS & Associates, Inc.
September 23-24, 2008Sacramento, CA
Cost Allocation – Rich Garrity, RLS & Associates, Inc. Page 2 of 175
Session Objectives1. Develop a Standard Approach to “Cost Allocation”1. Develop a Standard Approach to “Cost Allocation”
2. Identify Special Issues in Cost Allocation 2. Identify Special Issues in Cost Allocation
3. Build a Cost Allocation Model3. Build a Cost Allocation Model
4. Understand the Difference Between Cost and Price 4. Understand the Difference Between Cost and Price
5. Automating the Cost Allocation Process5. Automating the Cost Allocation Process
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Target Audience
This Session is Designed for: Organizations That Need an Approach to
Cost Individuals Service Components Transit Organizations that Provide
Service Under a Purchase of Service Arrangement to Other Users/Groups
Multi-Purpose Human Service Agencies Supported by Multiple Federal Grants
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Issues in Cost Allocation
The Term “Cost Allocation” Has Been Used to Describe a Wide Range of Allocation Needs Among Public Transit Operators
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Issues in Cost Allocation
In Transit, “Cost Allocation” Can Refer to a Series of Distinct Management/Accounting Practices
Each Cost Allocation Problem Requires a Separate Methodology, Typically Referred to As “Cost Allocation”
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Types of Cost Allocation
Financial Based Cost Allocation
Service Based Cost Allocation Plans
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Financial Based Cost Allocation
Central Service Cost Allocation Plans
Indirect Cost Allocation Plans
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Financial Based Cost Allocation #1
Central Services Cost Allocation Plan A Publicly Sponsored Transit Program
Benefits from the Services of Other Governmental Units and Desires to Claim Costs Incurred by these Units Under its Various Federal Awards
The Public Entity or Governmental Unit Must Prepare a “Central Services Cost Allocation Plan”
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Financial Based Cost Allocation #2 Indirect Cost Allocation Plan
An Entity (Public or Private Nonprofit) Provides Multiple Program Services
Certain Overhead and Administrative Costs Incurred by the Entity Benefit All Programs and Services, Including Transit
The Agency Seeks to Recoup These Costs in Their Billings to Various Federal Agencies
The Entity Requires an Approved “Indirect Cost Allocation Rate” in Order for Such Costs to be Reimbursable by the Federal Government
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Service Based Cost Allocation
Allocate Costs to Various Types/Modes/Services
Urban/Rural Cost Allocation Required by FTA
Charter Cost Allocation Local Match Allocation Plan
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Service Based Cost Allocation #1
Service Based Cost Allocation A Public Transit Agency Coordinates
Service With Various Human Service Agencies In The Area
The Transit Provider Has A Policy That Public Transit Funds Cannot Be Used To Subsidize Human Service Agency Client Transportation
The Transit Agency Needs A “Fully Allocated Cost Analysis” To Determine How To Price Contract Services
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Service Based Cost Allocation #2
Service Based Cost Allocation A Transit Agency Receives Funding Under
Both FTA Section 5307 And Section 5111 FTA Expects the Grantee to Develop a
Reasonable Basis for Allocating Operating Costs Between the Two Funding Sources that is Related to the Service Provided
FTA Requires a “Grant Allocation Plan” to Distribute Costs to the Two Different, But Related Programs
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Service Based Cost Allocation #3
Service Based Cost Allocation A Transit Agency Provides Charter
Service in Accordance with 49 CFR part 604
The Transit Agency Must Demonstrate That it Fully Recovers the Cost of Charter Service
The Agency Requires a “Charter Service Allocation Plan”
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Service Based Cost Allocation #4
Service Based Cost Allocation A Regional Transit Authority Provides
Service Over a Multi-Jurisdictional Service Area
Each Participating Local Entity Must Share Responsibility for Funding a Portion of the Local Share
The Authority Must Allocate Local Funding Needs In An Equitable Manner To All Participating Jurisdictions
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Multiple Cost Allocation Needs
Some Public Transportation Projects May Require Multiple Types of Cost Allocation
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Multiple Cost Allocation Needs
Municipal or County Government
Central Service Departments
Central Service Departments Operating Departments
Individual Operating Departments
Public Works & Transit
Central Service Cost Allocation Plan
Allocable Portion of Central Service Costs
Departmental Administration
Approved Indriect Cost Rate Approved Indriect Cost Rate
Allocable Portion of Departmental Indirect Costs
Allocable Portion of Departmental Indirect CostsTransit Public Works
Management
Transit Direct Costs:Shared Functions
Dispatch
Allocated on Basis of Service Units
Allocable Portion of
Transit Direct Costs:Direct Functions
Operations Maintenance
Fixed Route JARC Demand Response
Modes
Transit Management Costs (Fixed Costs)
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Multiple Cost Allocation Needs
Nonprofit Organization
Direct Expenses
Home Care TransportationCongregate Meals
Indirect Expenses
Approved Indirect Cost Rate
Allocable Portion of Indirect Costs
Management
Transit Direct Costs:Shared Functions
Dispatch
Allocated on Basis ofService Units
Allocable Portion of
Transit Direct Costs:Direct Functions
Operations Maintenance
Medicaid Contract Transit
Rural Public Transit
Title III Client Transit
Services
Transit Management Costs (Fixed Costs)
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Why Full Cost Identification?
Our Goal - To Answer the Questions: How Much Does the Transportation
Service Cost? How are We Going to Pay For It?
In Order to Achieve These Goals, Agency and Program Managers Must Use Financial Planning
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Why Full Cost Identification?
Assess Performance Measure Progress Toward the
Achievement of Goals and Objectives
Consider Actions Which May Change the Course of Future Events
Modify Policies, Procedures, and Processes
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Why Full Cost Identification?
Make Operational Changes, Including Those Leading To: Service Expansion, Reduction, Or
Cessation Increases Or Decreases In Services,
Revenues, And Staff Changes Or Modifications In
Procedures Or Other Activities (Such As Marketing Or Public Relations)
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Why Full Cost Identification?
Transportation Systems Need Complete and Accurate Financial Data in Order to: Manage the System So That its
Goals and Objectives are Met Efficiently
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Why Full Cost Identification?
Know the True Cost of Operating the System so that Costs May be Billed or Allocated Appropriately to the System's Users
Report to the Funding Sources or Purchasing Agencies How Money was Spent, What Revenues were Realized, and the Financial Status of the Organization
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Issues in Full Cost Accounting
Lack of Sufficient Account Detail In Organizational Accounting Systems
Failure to Capture and/or Allocate Agency Indirect or Overhead Costs
There Is A Lack Of Common Definitions For Accounts (Non-FTA Programs)
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Issues in Full Cost Accounting
Lack of Common Definition of Service
Failure to Capture Service Unit Data
Blended Program Expenditures Use of Capitated Payments
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Financial Planning:Why is This Important?
Planning for Change Changes We
Institute Changes
Forced Upon Us
Political Climate
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Financial Planning:Why is This Important?
Consider the Example: A Manufacturer Produces Two
Consumer Products What are Some of the Costs That
Will Be Incurred by this Company?
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Exercise No. 1
Exercise No. 1 - Take a Minute or Two to Jot Your Ideas Down on Paper
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Identifying Transportation Costs Now Consider ….
Since the Ingredients Used are Basically the Same as Product 2, the Product 1 Manager Opts to Include them all In Product 2 and Does Not Include Them in Calculating His Cost
Since Product 1 is Delivered on the Same Trucks as Product 2, the Product 1 Manager Does Not Include Them in Calculating His Cost
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Identifying Transportation Costs
Product 1 Research,
Development, & Testing
Purchase of Ingredients
Production Quality Control Distribution Marketing Profit
Product 2 Research,
Development, & Testing
Purchase of Ingredients
Production Quality Control Distribution Marketing Profit
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Identifying Transportation Costs Do You Disagree with this
Approach? Strongly Disagree Disagree Not Sure Agree Strongly Agree
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Identifying Transportation Costs What is this Product Line
Manager Doing Wrong? ? ? ?
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Identifying Transportation Costs Let’s Talk About a Transportation
Related Situation What About this Example?
A Transportation Provider Reports Their Transportation Expenses as Follows: Fuel Maintenance Insurance
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Identifying Transportation Costs Financial Planning Begins by
Establishing (or Reaffirming) Overall Strategies and Goals Mission Statement
WHAT Will the Transit Service Do? HOW Will the System Operate?
This Starts the Financial Planning Process
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Identifying Transportation Costs Cost Analysis is a Key Element
of Financial Planning Knowing the Costs of Individual
Routes or Services is Useful for Your Management Purposes and for Billing Your Client Agencies
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Identifying Transportation Costs The Basic Approach
Recommended and Used by Successful Business Operations and Transportation Systems is Called “Full Cost Accounting”
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Identifying Transportation Costs
To Use this Approach Requires an Understanding of Basic Cost Concepts and the Use of a Consistent Costing Method
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Identifying Transportation Costs Using “Full Cost Accounting”
Means that the Total Costs of Providing Transportation Services are Considered
Total Costs Include Any Commitment or Use of Time, Money, Physical Resources, and Other Assets of the Agency in the Delivery of Transportation Services
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Identifying Transportation Costs
In Full Cost Accounting, a Value is Given to These Commitments Whether or Not They Result in Immediate Out-of-Pocket Expenditures
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Identifying Transportation Costs Full Cost Accounting Will:
Assist the Manager in Understanding the TRUE Cost of Providing Service
Determine Needed Revenues -- Immediate and Long-Term
Allow Allocation of Costs to System Users
Compare Costs of Service with Other Systems (Peer Analysis)
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Identifying Transportation Costs Full Cost Accounting Will
Assist in Making Decisions to Participate in a Coordinated Services Program
Recognize Value of Donations (Time, Materials, and Supplies)
Permit Accurate Financial and Performance Monitoring/Evaluation
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Identifying Transportation Costs Analyze the Various Functions
and Activities that Your Transportation Program Carries Out on a Day-to-Day Basis
Management’s Responsibility is to Identify All Activities That Your Agency Performs in the Delivery of Transportation Services
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Identifying Transportation Costs Understand HOW the Activity
Creates Costs for the Transportation Program Your Transit Program DOES
Something Your Transit Program BUYS
Something Use a Functional Approach to
Cost Recognition
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Identifying Transportation Costs Functional Areas of Transportation:
Operations Maintenance Non-Vehicle Maintenance General Administration
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Identifying Transportation Costs The Agency’s Chart of Accounts
is the Basic Tool Used to Ensure that All Transportation Costs are Reflected in the Agency’s Accounting System
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Special Issues in Cost Allocation
Direct and Indirect Costs
Operating and Capital Costs
Fixed and Variable Costs
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Direct and Indirect Costs
Direct Costs Those Expenses Incurred by the Grantee
That Are Directly Related and Strictly Benefit Only the Public Transportation Program
Generic Examples: Compensation of Employees for the Time
Devoted and Identified Specifically to the Performance of the Grant
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Direct and Indirect Costs Direct Costs
Generic Examples: Cost of Materials Acquired, Consumed, or
Expended Specifically for the Purpose of Providing Public Transit Service
Equipment and Other Approved Capital Expenditures
Travel Expenses Incurred Specifically to Carry Out the Award
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Direct and Indirect Costs Direct Costs
Transit Examples: 501.01 – Operator's Salaries & Wages 501.03 – Dispatcher's Salaries & Wages 503.05 – Contract Vehicle Maintenance 504.01 – Fuel & Lubricants Consumed 504.02 – Tires and Tubes Consumed 508.00 – Purchased Transportation
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Direct and Indirect Costs Indirect Costs
Generic Examples Certain Central Service Costs General Administration of the Organization Accounting and Personnel Services Performed
Within the Organization the Delivers Public Transit Services
Costs of Operating and Maintaining Facilities
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Direct and Indirect Costs
Indirect Costs Transit Examples
501.04 – Administrative Salaries & Wages
512.12 – Other Administrative Facilities
505.02 – Telephone
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Direct and Indirect Costs Why Is the Identification of
Indirect Costs Important? Full Costs =
Direct Costs + Allocable Portion of Indirect Costs – Rebates/Credits
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Direct and Indirect Costs Will All Transit Agencies Incur
Indirect Costs? No
Independent Transit Authorities Other Units That Do Not Rely on
Central Services
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Direct and Indirect Costs How Can We Tell if We Need An
Indirect Cost Allocation Plan? If a Transit System Incurs Costs That Are: Accumulated in the Accounts of Another
Department or Division of the Organizations
Incurred by Nonprofit Agency Management That Benefits Multiple Programs
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Direct and Indirect Costs
Indirect Costs Must Be Allocated in a Manner Consistent with Procedures Set Forth in OMB Circulars A-87 or A-122
Facility Expenses
Transportation
Meals
Vocational Services
Homemaker Services
FunctionExpense
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Direct and Indirect Costs How are Indirect Costs Claimed
Under Federal Awards? OMB Circular A-87, Attachment A,
“General Principles for Determining Allowable Costs,” paragraph C3(d) states:
Where an accumulation of indirect costs will ultimately result in charges to a Federal award, a cost allocation plan will be required
OMB Circular A-122 contains similar language
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Indirect Cost Allocation
You MUST Have An Indirect Cost Allocation Plan or Indirect Cost Rate in Order to Claim Reimbursement Under Federal Awards
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Indirect Cost Allocation
Indirect Cost Rate Proposals or Cost Allocation Plans Must Either: Be Submitted to a Federal Cognizant
Agency; or Be Maintained on File by the
Governmental Unit Similar Rules Apply to Nonprofits
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Indirect Cost Allocation
"Cognizant Agency" Means the Federal Agency Responsible for Reviewing, Negotiating, and Approving Cost Allocation Plans or Indirect Cost Proposals Developed on Behalf of All Federal Agencies
OMB Publishes a Listing of Cognizant Agencies
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Indirect Cost Allocation
Negotiation and Approval of Rates Generally, the Federal Agency with the
Largest Dollar Value of Awards to the Nonprofit Organization Will be Designated as the Cognizant Agency for the Negotiation and Approval of the Indirect Cost Rates
The Designation Is Not Changed Unless There is a Major Long-Term Shift in the Dollar Volume of Federal Awards
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Indirect Cost Allocation
In No Case Shall an Indirect Cost Allocation Plan or Indirect Cost Rate Proposal Be Acceptable Unless it Has Been Certified by the Governmental Unit Using the Certificate of Cost Allocation Plan or Certificate of Indirect Costs
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Indirect Cost Allocation
The Certification Must be Signed on Behalf of the Governmental Unit by an Individual at a Level No Lower than Chief Financial Officer of the Governmental Unit that Submits the Proposal or Component Covered by the Proposal
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Indirect Cost Allocation
Where a Local Government Only Receives Funds as a Subrecipient, the Primary Recipient Negotiates the Indirect Cost Rates and/or Monitors the Subrecipient's Plan
Section 5311 Primary Recipient: Caltrans Subrecipient: Grantee
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Indirect Cost Allocation
Indirect Cost Rates and Cost Allocation Plans Have Specific Documentation Requirements: Organization Chart Comprehensive Annual Financial
Report Certification
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Indirect Cost Allocation
Indirect Cost Rates and Cost Allocation Plans Where an Organization’s “Central Services” are Included Must: Identify the Unit Rendering the
Service and the Operating Agencies Receiving the Service
Detail the Items of Expense Included in the Cost of the Service
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Indirect Cost Allocation
Indirect Cost Allocation Plans Must: Describe the Method Used to
Distribute the Cost of the Service to Benefitted Agencies
Contain a Summary Schedule Showing the Allocation of Each Service to the Specific Benefitted Agencies
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Indirect Cost Allocation
Guidelines for Nonprofits are Similar to Those for Government Agencies
Procedures for Nonprofits Are Prescribed in OMB Circular A-122, Attachment A, Paragraph C
Procedures for Educational Institutions Different – Consult A-21
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Indirect Cost Allocation
Prescribed Methodologies Simplified Allocation Method Multiple Allocation Base Method Direct Allocation Method
(Nonprofits Only) Special
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Indirect Cost Allocation
A-122 States that Indirect Costs be Classified within Two Broad Categories: Facilities Administration
A-21 Provides Similar Classification
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Indirect Cost Allocation
A Nonprofit Organization Which Has Not Previously Established an Indirect Cost Rate with a Federal Agency Shall Submit its Initial Indirect Cost Proposal Immediately After the Organization is Advised that an Award will be Made and, in No Event, Later Than Three Months After the Effective Date of the Award
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Indirect Cost Allocation
Use of a Standardized Chart of Accounts Is Essential to Indirect Cost Allocation Modify or Expand the Chart of
Accounts to Meet Needs
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Indirect Cost Allocation Plan Preparation Guide
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Indirect Cost Allocation Plan Preparation Guide
HHS Guide Can be Downloaded at:
http://rates.psc.gov/fms/dca/asmb%20c-10.pdf
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Capital vs. Operating Costs Operating Costs are Consumed in
Less Than One Year (e.g., Wages, Fuel) and Generally Have a Unit Acquisition Cost of Less Than $300.00
Capital Costs are Expenses for Long-Term Assets (e.g., Vehicles, Garages)
Definitions May be Set by the Grantor Agency
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Capital vs. Operating Costs
Under the Section 5311 Program, Capital Expenses are Defined in FTA Circular 9040.1F, Chapter III, Paragraph 2e(2)
This Document Can Be Obtained at http://www.fta.dot.gov/documents/FTA_C_9040.1F.pdf
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Capital vs. Operating Costs Defining Capital Costs is
Important, as OMB Circular A-87 States that Depreciation Will Exclude: Any Portion of the Cost of
Buildings and Equipment Borne by or Donated by the Federal Government Irrespective of Where Title was Originally Vested or Where it Presently Resides
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Capital vs. Operating Costs What Does this Mean?
If the Cost of the Vehicle (Asset) Was Paid for by a Federal Program, You May NOT Include Depreciation of that Asset in Your Charges to Other Federal Programs in the Cost of Service Provision Source: OMB Circular A-87,
Attachment B, Paragraph 15c(2); and OMB Circular A-122, Attachment B, Paragraph 11c(2).
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Fixed vs. Variable Expenses
Variable Costs Change Relative to the Amount of Service Provided (e.g., Drivers' Wages)
Fixed Costs Do Not Vary with the Amount of Service Provided (e.g., Administrative Salaries)
Fixed
Variable
Total
Output
Co
st
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Why Cost Allocation? Fad or Management Necessity?
An Understanding of Fully Allocated Costs Provides Management with: The Ability to Accurately Price Services
Provided Under Contract An Assessment Tool to Evaluate
Changes in Service For Example, the Cost of Adding or
Losing a Contract Service Could Be Estimated
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Why Cost Allocation?
General PublicRidership
More GrantFunds From Caltrans??
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Why Cost Allocation?
To Determine How Much It Costs to Provide A Specific Transit Service
$6.80Per
Trip
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The Cost Allocation Process
Why Do We Need a Model to Determine Cost? Why Can’t We Simply Divide
Total System Cost by Total System Miles?
Or Total System Cost by Total System Hours?
Consider the Following:
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The Cost Allocation Process Do These Trips Cost the Same?
5 Miles
5 Miles
10Minutes
5 Miles
5 Miles
20Minutes
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The Cost Allocation Process Do These Trips Cost the
Same?8 Miles
5 Miles
20Minutes
5 Miles
5 Miles
20Minutes
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The Cost Allocation Process
Transportation Costs are Driven by Two Critical Factors: Time AND Distance
Our Model Must Take Both Factors Into Account When Costing Transportation Services
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Developing a Cost Allocation Model How Do We Allocate Costs?
Don’t Worry, This Process is Not Complicated!
Another Program Mandate???? Aaaaaagh!!!
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Cost Allocation Model
Cost Allocation Assumes: Total System Costs Can be
Allocated to Service Based on the Level of Service Provided
System Average Unit Costs Can Be Used to Estimate Service Costs
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Overview of Cost Allocation Process
Assemble Data
Assign Expense Line Items
Calculate Unit Costs
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Issues in Assembling Data
Where Do We Get Cost Data?
What Time Period Should be Used?
Projected vs. Actual?
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Required Data Twelve (12) Months Actual or
Projected Transit Expense Data Expense Data Will be Classified as
Either: Fixed Expense Variable Expense
Service Data Vehicle-Miles Vehicle-Hours Passenger Trips
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Assigning Cost to Categories Cost Allocation Involves Taking
Each Expense Line Item and Assigning It to Either the Fixed or Variable Category
Variable Expenses are Further Broken Down as Varying Either by: Hour Mile
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Assigning Cost to Categories
Fixed Costs are Those Costs that Will Not Change As a Result of an Increase or Decrease in Service Levels
Variable Expenses are Those Costs that Will Change if There is a Change in Service Levels
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Assigning Cost to Categories There are No Hard and Fast
Rules…..But: Project Administration Costs are
Almost Always Fixed Understand the Basis of Each
Cost Item and Assign Accordingly Be Logical BE CONSISTENT
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Exercise No. 2, Part A
Using the Provided Budget, Classify Each Line Item Expense as Either: Fixed Variable (by Hours) Variable (by Miles)
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Exercise No. 2, Part B
Now that We Have Classified Each Expense Line Item, We Want to Total All Fixed Expenses, All Variable - Hours Expenses, and All Variable - Miles Expenses
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Calculation of Unit Costs We Now Have a Total of Fixed and
Variable Costs We Need to Calculate Our Unit Costs.
There are Three (3) Calculations: Allocated Hours Cost Allocated Miles Cost Allocated Fixed Expense
Demand Response: Ratio Fixed Route: Fixed Cost Per Vehicle
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Calculation of Unit Costs
Allocated Hours Cost:
Total Allocated Hours Cost ÷Annual Projected Vehicle Hours
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Calculation of Unit Costs
Allocated Miles Cost:
Total Allocated Miles Cost ÷Annual Projected Vehicle Miles
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Calculation of Unit Costs What Do We Do With Fixed
Expenses? There Are Different Approaches -
For Most Demand Response Systems in Rural Areas, Fixed Expenses are Expressed as a Percentage or Ratio of Allocated Variable Expenses (Hours Cost + Miles Cost)
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Calculation of Unit Costs
In Rural Systems, Fixed Expenses are Expressed as a Percent of Variable Expenses: Fixed Cost Factor =
Total Fixed Expenses ÷ (Total Allocated Hours Expenses + Total Allocated Miles Expenses)
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Calculation of Unit Costs
In Urban Systems, Fixed Expenses are Expressed as Follows:(Total Fixed Expenses ÷ Total
Vehicles In Maximum Revenue Service)
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Exercise No. 3
Calculate the Unit Rates Allocated Hours Cost Allocated Miles Cost Fixed Cost Ratio
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Completing the Computations The Fully Allocated Cost of Service is
Equal to:
{(Total Annual Projected Hours x Allocated Hours Cost)
+(Total Annual Projected Miles x Allocated Miles Cost)}
+ {Fixed Cost Factor x [(Total Annual Projected Hours x Total Allocated Hours Cost) + (Total Annual Projected Miles x Allocated Miles Cost)]}
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Completing the Computations
To Test our Unit Average Costs, Plug in Total Annual Projected Hours and Total Annual Projected Miles into the Above Equation to Ensure the Result = Total Annual Expenses
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Completing the Computations
Congratulations … You Have Just Developed a Cost Allocation Model
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Applying the Model
Now that We Have Our Model, We Will Put it to Work
We'll Sort Through The X's and O's By Looking At Allocating the Costs
of Various System Users
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Exercise No. 4
Using the Parameters Given, and Our Cost Model Unit Costs, We Will Calculate How Much it Costs to Provide Service to the Five Different Users of Our Transit System
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Exercise No. 4
This Exercise is Comparable to the Process a Transit Manager Would Use to Determine What Each Agency Should Pay to Purchase Service from the Provider of Services
Cost Allocation – Rich Garrity, RLS & Associates, Inc. Page 113 of 175
Exercise No. 4 In this Exercise, Management Has Made an
Estimate of the Resources (Hours & Miles) of Service that Each User Will Consume
The Allocated Hours Cost and the Allocated Miles Cost is Applied to Each User
Fixed Costs are Then Added, Then the Three (3) Costs are Summed to Arrive at the Provider’s Fully Allocated Cost of Service
Let’s Walk Through the Computation for the First Agency User
Cost Allocation – Rich Garrity, RLS & Associates, Inc. Page 114 of 175
Review We Built a Cost Allocation Model
that Uses Generally Accepted Accounting Principles to Allocate Transportation Costs Among Various Agency Users
We Learned How to Use the Model to Determine or Project the Costs for Individual Agency Users
Cost Allocation – Rich Garrity, RLS & Associates, Inc. Page 116 of 175
Using the Model to Price Contract Services We Will Examine the Ways in Which
A Transit System Can Use Fully Allocated Costs to Develop Unit Pricing for Contracted Services Various Types of “Unit” Costs Pro’s and Con’s of Each Unit Cost Type
We Will Calculate Various Units Costs for Our Transit System
Cost Allocation – Rich Garrity, RLS & Associates, Inc. Page 117 of 175
Objectives in Our Rate Structure
Our Objectives in the Process: Simple Equitable Reflect Actual Cost of Service
Provision Appropriate Use of Public
Subsidies
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Alternative Rate Structures
Per Trip Per Mile Per Hour Per Passenger Mile Per Zone
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Price Per Trip
Price Per Trip Computed as Follows:
Fully Allocated Costs of the Service ÷ No. Projected Passenger Trips
Cost Allocation – Rich Garrity, RLS & Associates, Inc. Page 120 of 175
Characteristics of Per Trip Pricing Simple Shared Ride Equity Assumes That Are Trips Have
Similar Characteristics Works Best in Small Service Areas Greater Risk for Service Provider Short Trips Subsidize Long Trips
Cost Allocation – Rich Garrity, RLS & Associates, Inc. Page 121 of 175
Price Per Mile
Price Per Mile Computed as Follows:
Fully Allocated Costs of the Service ÷ No. Projected Miles of Service
Cost Allocation – Rich Garrity, RLS & Associates, Inc. Page 122 of 175
Characteristics of Per Mile Pricing Customers Understand Miles Requires Recordkeeping by Drivers Cost Per Mile Varies Based on
Route Path Driven on a Given Trip Does Not Address Travel and Wait
Time Dead Head Mileage Shared Ride Equity Issues
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Price Per Hour
Price Per Hour Computed as Follows:
Fully Allocated Costs of the Service ÷ No. Projected Vehicle Hours
Cost Allocation – Rich Garrity, RLS & Associates, Inc. Page 124 of 175
Characteristics of Per Hour Pricing Requires Recordkeeping by
Drivers Cost Per Hour Varies Based on
Route Path Driven on a Given Trip
Addresses Travel and Wait Time Shared Ride Equity Issues
Cost Allocation – Rich Garrity, RLS & Associates, Inc. Page 125 of 175
Price Per Passenger Mile
Price Per Passenger Mile Computed as Follows:
Fully Allocated Costs of the Service ÷ No. Projected Passenger Miles
Cost Allocation – Rich Garrity, RLS & Associates, Inc. Page 126 of 175
Characteristics of Per Passenger Mile Pricing
Equitable Addresses Shared Ride Some Shared Ride Equity
Issues Generally Requires Automation
to Assist in Billing Computations
Cost Allocation – Rich Garrity, RLS & Associates, Inc. Page 127 of 175
Price Per Zone
Price Per Zone Zones are Artificial Grids
Overlaid on a Map of the Service Area
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Price Per Zone
Computed as Follows:
Fully Allocated Costs of the Service ÷ No. Projected Zones of Travel
Cost Allocation – Rich Garrity, RLS & Associates, Inc. Page 130 of 175
Price Per Zone Counting Zones Zones are Counted on a Straight-Line Basis,
Up and Down, Left or Right (No Diagonal Movement)
33
7
1
2
5
6
B H JIDC ME F G K L
1 2 3 4
10
8
9
3
4
6
7
5
A
Columbus
Dublin
Hilliard
Upper Arlington
Worthington
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Characteristics of Zone Pricing Sometimes Difficult to Explain Relatively Simple to Administer Easy to Predict Trip Cost if User is
Familiar with Zone Map Requires Initial Estimate of Zones
Traveled in Order to Set Rate Short Trips Will Generate
Problems in Cost Recovery Sensitive to Zone Size
Cost Allocation – Rich Garrity, RLS & Associates, Inc. Page 132 of 175
Rate Setting Complexities
Ridesharing Wait Time Out-of-County Trips Mixed Fleet (e.g., Different Sized
Vehicles) Brokerage: Trips Assigned to Other
Providers Contracted Services Subsidies
Cost Allocation – Rich Garrity, RLS & Associates, Inc. Page 133 of 175
Ridesharing
Occurs When the Clients of Two or More Agencies that Contract for Service Ride the Same Vehicle
Some Rate Structures Will Require Sub-Allocation of Costs Per Hour and Per Mile Pricing
Methods
Cost Allocation – Rich Garrity, RLS & Associates, Inc. Page 134 of 175
Ridesharing
Suggested Approaches Pro-Rate Trip Costs Based on:
Percent of Agency “A” Passengers as Percent of All Passengers (Percent x Overall Route Cost)
Calculate Trip Cost Based on Total Number of Passengers ((Overall Trip Cost ÷ No. of Passengers) x Passengers Agency “A”)
Problems Assumes Uniform Trip Characteristics Gives Appearance of Uniform Rate
Cost Allocation – Rich Garrity, RLS & Associates, Inc. Page 135 of 175
Wait Time
Labor Costs Associated with Wait Time is a Problem
Suggested Approach Adopt Time-Based Pricing
Cost Per Hour Added Wait Time Charges on Top of
Existing Pricing Strategy (e.g., $10.00 per Hour)
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Out-of-Service Area Trips
Use The Cost Allocation Model as the Pricing Structure
Cost Allocation – Rich Garrity, RLS & Associates, Inc. Page 137 of 175
Mixed Fleets
Different Operating Cost Structure of Large Buses over Minivans/Standard Vans
Options: Adopt Tiered Pricing Structure Use Uniform Structure
Cost Allocation – Rich Garrity, RLS & Associates, Inc. Page 138 of 175
Brokered Trips
Adopt Uniform Rate Structure Despite Differential Costs/Charges Among Multiple Providers
Cost Allocation – Rich Garrity, RLS & Associates, Inc. Page 139 of 175
Contracted Services
Fully Allocated Cost Pricing Means System Administration Costs Plus Contractor’s Rate are Incorporated Into the Pricing Structure
Cost Allocation – Rich Garrity, RLS & Associates, Inc. Page 140 of 175
Subsidies
Deduct Subsidy Amount Prior To Calculating Average Unit Rates in Your Cost Allocation Model
Run Cost Model With and Without Subsidy so Users Understand True Cost of Service
Cost Allocation – Rich Garrity, RLS & Associates, Inc. Page 142 of 175
Overview
As You Can See from the Cost Allocation Model Built Earlier in this Workshop Cost Allocation Can be Repeated
on an Annual Basis The Process Lends Itself to
Spreadsheet Application
Cost Allocation – Rich Garrity, RLS & Associates, Inc. Page 143 of 175
Cost Allocation Model
The Course CD-ROM Contains a Generic Cost Allocation Model
Let’s Take A Look at the Model
Cost Allocation – Rich Garrity, RLS & Associates, Inc. Page 144 of 175
Cost Allocation Model
Copy the File “Cost Allocation Model.xls” to a Folder on Your Computers Local or Network Drive
Start MS Excel Navigate to Folder and Open
the Model
Cost Allocation – Rich Garrity, RLS & Associates, Inc. Page 145 of 175
Cost Allocation Model
Cautions Excel Will Generate One of Two
Messages, Depending on Your Security Level Excel Will Not Permit You to Open the
File Action:
Reset Security Level to Medium From the Menu, Click on Tools, Options,
Security Tab, Click on the Macro Security Button and Select Medium
Cost Allocation – Rich Garrity, RLS & Associates, Inc. Page 146 of 175
Cost Allocation Model
Cautions Once Set to Medium, Excel Will
Permit You to Open the File, But Will Generate a Warning Message
You Must Click on “Enable Macros” in Order for the Cost Allocation Model to Work
You are Not Jeopardizing Your Computer or Network Security
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Cost Allocation Model:Macro Warning
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Cost Allocation Model:Opening Screen
Cost Allocation – Rich Garrity, RLS & Associates, Inc. Page 149 of 175
Cost Allocation Model:Opening Screen Opening Screen
The Cost Allocation Model Will Always Open to This Screen (Rather Than Last Place)
To Continue, Click the “Begin” Button
This Will Advance You to the “Table of Contents” Worksheet
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Cost Allocation Model:Table of Contents
Cost Allocation – Rich Garrity, RLS & Associates, Inc. Page 151 of 175
Cost Allocation Model:Opening Screen First Step – Enter System
Service Data Vehicle Hours Vehicle Miles Vehicles Used in Peak Revenue
Service Click On “Step 1 – Enter ……”
Cost Allocation – Rich Garrity, RLS & Associates, Inc. Page 152 of 175
Cost Allocation Model:Opening Screen
Cost Allocation – Rich Garrity, RLS & Associates, Inc. Page 153 of 175
Cost Allocation Model:Enter Service Data What Time Period For Data?
Analysis of Past Performance Historical Data
Projected Costs for a Future Period Budgeted or Projected Data
Enter System Hours and Miles For Fixed Route Systems, Enter
Peak Vehicles In Revenue Service
Cost Allocation – Rich Garrity, RLS & Associates, Inc. Page 154 of 175
Cost Allocation Model:Enter Service Data:
Cost Allocation – Rich Garrity, RLS & Associates, Inc. Page 155 of 175
Cost Allocation Model:Next Step Once You Have Entered System
Service Data, Click on “Back to Table of Contents”
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Cost Allocation Model:Next Step
Cost Allocation – Rich Garrity, RLS & Associates, Inc. Page 157 of 175
Cost Allocation Model:Enter Budget Data From the Table of Contents,
Click on Step 2 – Enter Budget Data for Your Transportation System
This Will Take You To a Worksheet Where You Will Enter Budget Data
Cost Allocation – Rich Garrity, RLS & Associates, Inc. Page 158 of 175
Cost Allocation Model:Enter Budget Data
Cost Allocation – Rich Garrity, RLS & Associates, Inc. Page 159 of 175
Cost Allocation Model:Enter Budget Data The Chart of Accounts is
Generic, Based on the FTA Uniform System of Accounts (USOA)
The Chart Requires You To Enter Data in Accordance With Four Basic Function Codes
Cost Allocation – Rich Garrity, RLS & Associates, Inc. Page 160 of 175
Cost Allocation Model:Enter Budget Data Four Basic Function Codes
Operations Vehicle Maintenance Non-Vehicle Maintenance General Administration
Cost Allocation – Rich Garrity, RLS & Associates, Inc. Page 161 of 175
Cost Allocation Model:Enter Budget Data Enter Budget Data
Each Function Code Has Its Own Column
Columns Automatically Total for Each Function Each Line Item
Where the Cells are Shaded, It Means That, By Definition, the System Cannot Have Expenses in That Line Item
Cost Allocation – Rich Garrity, RLS & Associates, Inc. Page 162 of 175
Cost Allocation Model:Enter Budget Data If You are Unfamiliar With the
USOA Chart of Accounts, Help is Available
By Moving Your Mouse Cursor Over the Tiny Red Triangle on the Ride Side of the Account Column
Cost Allocation – Rich Garrity, RLS & Associates, Inc. Page 163 of 175
Cost Allocation Model:Enter Budget Data
Cost Allocation – Rich Garrity, RLS & Associates, Inc. Page 164 of 175
Cost Allocation Model:Compute Fully Allocated Costs Once You Have Enter Budget
Data, Click the Button on the Top of the Worksheet and Go Back to the Table of Contents
Click on “Step 3: Calculate the Fully Allocated Cost of Any Service Component”
Cost Allocation – Rich Garrity, RLS & Associates, Inc. Page 165 of 175
Cost Allocation Model:Compute Fully Allocated Costs A Final Data Entry Sheet Will
Appear You Will Need to Specify The
Mode of Service Fixed Route Demand Response
Fixed Expenses Are Allocated Differently in Each Mode
Cost Allocation – Rich Garrity, RLS & Associates, Inc. Page 166 of 175
Cost Allocation Model:Compute Fully Allocated Costs You Then Enter the Estimated
or Actual Vehicle Hours or Vehicle Miles
If Costing a Fixed Route Service, Also Enter the Number of Peak Vehicles Used for the Proposed Service
Cost Allocation – Rich Garrity, RLS & Associates, Inc. Page 167 of 175
Cost Allocation Model:Compute Fully Allocated Costs
Cost Allocation – Rich Garrity, RLS & Associates, Inc. Page 168 of 175
Cost Allocation Model:Compute Fully Allocated Costs Once You Enter the Required
Service Data, The Fully Allocated Cost Will Automatically be Computed and Shown in the Bottom Box!
Cost Allocation – Rich Garrity, RLS & Associates, Inc. Page 169 of 175
Cost Allocation Model:Other Elements The Model Works Because Once
the Budget Information, Standardized Assignment of Each Line Item Has Already Been Established
You DO NOT Have to Assign Each Line Item to the Fixed, Variable-Hours, or Variable Miles Category
Cost Allocation – Rich Garrity, RLS & Associates, Inc. Page 170 of 175
Cost Allocation Model:Other Elements You Can View the Assignment of
Costs From the Table of Contents, Click on
“View the Assignment of Cost Categories” Your Total Budget Information Appears An “X” Indicated How the Model
Classifies Each Line Item, By Function Code
Cost Allocation – Rich Garrity, RLS & Associates, Inc. Page 171 of 175
Cost Allocation Model:Other Elements You Can Also View the Total
Computations of Fixed and Variable Expenses
From the Table of Contents Click on “View the View the Cost
Computations”
Cost Allocation – Rich Garrity, RLS & Associates, Inc. Page 172 of 175
Cost Allocation Model:Other Elements Finally, Some Additional
Explanation, Help, or Tips are Available from All Screens
Click on the “Get Help on This Section to Get Context Sensitive Help”
Cost Allocation – Rich Garrity, RLS & Associates, Inc. Page 173 of 175
Cost Allocation Model:Other Elements
Cost Allocation – Rich Garrity, RLS & Associates, Inc. Page 174 of 175
Adjourn
Good Luck in Using this Information at Your Own Transit Programs
Please Complete the Course Evaluation!!
Cost Allocation – Rich Garrity, RLS & Associates, Inc. Page 175 of 175
Presenter
Richard Garrity, Senior AssociateRLS & Associates, Inc.
3131 S. Dixie Highway, Suite 545Dayton, OH 45439
(937) 299-5007
Direct Line: (910) [email protected]