Question

The Better Business Bureau, through its BBB Wise Giving Alliance, provides information about charitable organizations (see www.bbb.org/us/charity or go to www.wiley.com/college/eldenburg). On the Web site, organizations are evaluated based on whether they meet the Alliance's Standards for Charity Accountability. One of those standards states that a charitable organization shall "spend at least 65% of its total expenses on program activities." This standard reflects the desire of donors to be sure that an organization devotes its resources primarily to programs rather than to administration and fund-raising.
Suppose a charitable organization called Food on Wheels provides meals for low-income individuals who are unable to leave their homes. To support its services, it solicits contributions from individuals and businesses. The organization’s director would like the organization to be listed on the BBB Wise Giving Alliance Web site. Food on Wheels needs to submit financial statements in which its expenses are assigned to the following cost pools: administrative, fund-raising, and programs. The bookkeeper for Food on Wheels is a volunteer who is taking accounting classes at the local community college. He knows that all of the costs to prepare and deliver meals should be assigned to the program. However, he is not sure how to assign some of the costs. In particular, he is concerned about the following two items.
Costs for printing and mailing a monthly newsletter. The newsletter is sent out to donors and clients and asks for donations. It also describes the organization’s activities, provides information for obtaining meal services, and provides recipes for some of the meals that are served. The director of the organization wants the cost of the newsletter to be classified as a program cost. She maintains that the program information and recipes should be considered educational material. Not-for-profit organizations typically classify educational materials as program expenses.
Director’s salary and benefits. The director of Food on Wheels spends much of her time raising funds, meeting with the board of directors, and performing other administrative duties. She also manages the cooks and drivers, purchases food and delivery supplies, and schedules the food deliveries. The director has instructed the bookkeeper to allocate her salary and benefit costs as follows: 50% to the program, 25% to fund-raising, and 25% to administration.

REQUIRED
A. Identify and discuss uncertainties about how each of the following costs should be classified:
1. Costs to print and mail the newsletter
2. Director’s salary and benefits
B. Does this situation involve an ethical dilemma for the bookkeeper? Why or why not?
C. Explain why the director has a preference for costs to be assigned to program expenses.
D. Explain how you think donors would prefer for the costs in part (A) to be assigned.
E. Suppose you are reviewing cost information for another organization reported on the Better Business Bureau Web site. Would you expect the organization’s program costs to be biased upward, biased downward, or to be unbiased? Explain.
F. How would you classify the costs in part (A) if you were the bookkeeper for Food on Wheels? Explain your reasoning.



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  • CreatedJanuary 26, 2015
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