Anatomy of ABC

Recently the Veterans Affairs Department's Veterans Benefits Administration began calculating the cost of activities related to key outputs (called product lines), including the cost of processing death awards at the adminsitration's Philadelphia Regional Office and Insurance Center.

In fiscal 1996, the office processed 134,285 death awards at a total administrative cost of $7,416,640, or $55.23 per transaction. The value of all death benefit payments awarded is in the billions of dollars.

According to Richard Norwood, the agency's project manager for activity based costing, the detailed breakdown of costs per transaction will allow managers at the Philadelphia center to much more accurately monitor and analyze major fluctuations in the cost per unit of delivering death benefits from year to year.

The Output: 134,285 Death Benefit Claims

The cost of that output broken down by activities for fiscal 1996:

Receive and process incoming mail $486,793
Research case files $426,693
Additional research for more complex cases $78,993
Processing and mailing the death award check $4,031,204
Verify that checks were sent out $427,642
Spot-check the award and verification process $245,906
Customized (non-automated) claims disbursements $143,228
General follow up on file and paperwork $234,479
Update or retire files $274,766
Information technology systems cost $1,066,936
Total $7,416,640
Total transactions 134,285
Cost per transaction $55.23
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