Question

Why must not-for-profit organizations determine when it is appropriate to allocate any cost for a joint activity among fund-raising, program, and administrative activities?

Answer 1

For a not-for-profit to appropriately evaluate the uses of its resources, the AICPA require that multipurpose costs be allocated between program and support categories. Program expenses are those that are directly aimed at the accomplishment of the organization's charitable objectives and are considered a more valid use of resources. Comparison of support expenses to total expenses may suggest a measure of organizational efficiency. The AICPA is concerned with donors having knowledge of the relative and absolute magnitude of funds spent on fundraising.

For a not-for-profit to appropriately evaluate the uses of its resources, the AICPA require that multipurpose costs be allocated between program and support categories.