4.1 Expenditure and costs
Expenditure involves everything an organisation might have to pay for and could include some of the following:
- salaries to staff
- volunteers’ expenses
- building and energy costs
- office and cleaning supplies
- computer and website maintenance
- publicity.
It is important to be realistic about costs, so a new budget would require some research on what new items might cost or how much it costs to heat a building either monthly or quarterly, etc.
Costing is a common sense procedure with which many people are familiar; for example, when planning a holiday or buying a car. It involves identifying all the different items, estimating (or finding out) how much they will cost, and adding them up. Costing only becomes complicated if the activities being costed are complicated – or unfamiliar and uncertain. Some costs are more readily anticipated and calculated than others.
Formally, the term ‘cost’ refers to the amount of expenditure (actual or notional) incurred on or attributed to a specific item or activity. The costs you might have come across include:
- the costs or expected costs of different resources
- whether the costs for the service, project, unit or organisation are more or less than expected
- how much it costs to undertake specific activities.
Some costs vary with the level of activity while others do not; some costs can be attributed to certain activities and some cannot.
- Fixed costs: Some costs are not affected by changes in the level of an organisation’s activity. For example, the rent that an organisation pays for its premises will not vary with the volume of the work that it does. The rent paid is independent of the level of the activity.
- Variable costs: Some costs increase or decrease as the level of activity rises or falls; for example, photocopying costs.
- Direct costs: Sometimes it is possible to attach or attribute a cost to a particular activity. For example, a member of staff works for so many hours with service users or clients, and so that cost can be calculated as part of a contract with a local authority.
- Indirect or overhead costs: Not all costs can be attributed to particular tasks. For example, it might be difficult to attribute general marketing costs to particular activities.
This gives you a brief overview of the different types of cost so that if you are asked to look at a budget and give your opinion, you will recognise some of the terms used.
Activity 5 Looking at costs and expenditure
Table 3 shows the forecast expenditure for Oldtown Community Association. Read the table and then answer the questions that follow.
| Insurance | £2,000 |
| Energy costs | £3,000 |
| Volunteers’ expenses | £500 |
| Marketing and fundraising events | £1,200 |
| Telephone | £200 |
| Printing and stationery | £150 |
| New computer and printer | £500 |
| New desks and chairs | £1,500 |
| Building work | £32,000 |
| Car park work | £5,000 |
- What is the Association’s total annual budget expenditure?
- What is the single largest category of expenditure?
- Compare Table 2 with Table 3. (You might find it easiest to do this by opening Table 2 in a new tab or window.) Does the budget balance; that is, is the estimated income the same as the planned expenditure?
Comment
- The total forecast expenditure is £46,050. However, the £5,000 for the car park is uncertain as the grant application has not yet been approved: this work will only go ahead if the application is successful.
- The building work is the highest cost for the financial year. Unforeseen problems mean that the building costs will be more than the grant. This means the shortfall will need to be found from elsewhere or they might choose to cut costs elsewhere. However, the committee would need to check the terms of their grant to ensure they are fulfilling them.
- The total projected income is £56,300. Therefore, all being well, they will spend £15,250 less than this, which gives them a good contingency and would cover the extra projected building costs. This figure does not include the car park work. The car park work will only go ahead if they get the grant so that £5,000 is separate in terms of both expenditure and income. It might be that the committee would review these figures and decide to do some other projects. Their reserves are potentially available but are usually only drawn on in emergencies and not for routine expenditure.