Create Allocation – A summary of the activity

Cost allocation is a process in which costs incurred by a cost center are allocated to other cost centers for which some services were rendered. For example, consider a company COMP1 that has a centralized purchase department because the raw material is common across the different manufacturing units. The purchasing department (by itself a cost center) has its own overheads in the form salaries, electricity and communication expenses. However, the time and effort of this department is involved in procurement for other cost centers. Therefore, the costs incurred by this cost center is transferred or allocated to the cost centers serviced by it. In this example, the costs can be allocated on the basis of number of purchase orders raised by it for other departments.

This activity allows you to define allocations that can be used to allocate costs incurred by a source cost center to several target cost centers. You can perform cost allocation in both the cost element as well as at the cost center level. If the allocation is done at the cost center level, then the source cost center details alone are specified. Otherwise, the source cost center and the corresponding cost elements details are entered. Unlike the source cost center, for the target cost center both the details of the target cost center and cost elements should be specified.

While cost is allocated to the target cost centers, the allocation details specified in the main page, can be used to do so or an allocation basis can also be created with a number of parameters. The cost allocation basis if specified will take precedence. The system keeps track of the allocation basis with an internal flag called “Allocation Basis”.

This activity also allows you to copy the allocations that have been defined on a finance book for an accounting period to another finance book or a different accounting period of the same finance book. You can also record your observations pertaining to the cost allocation process.

Getting familiar with the pages inside

What you can do in this activity

Grouping related allocations

Automatic generation of sequence numbers for each allocation

Allocations for budgeted and actual cost

Transferring cost from credit cost elements

Transferring cost to debit cost elements

Grouping related allocations

Allocations that are defined on a finance book for an accounting period can be grouped together with the help of run numbers.

• Specify the finance book and the accounting period.

• Specify a unique run number.

Automatic generation of sequence numbers for each allocation

To distinguish allocation definitions within a Run Number; Sequence Numbers are used. The system automatically takes care of this by generating sequence numbers as and when they are defined.

• Specify the run number

• The sequence number is automatically generated.

Allocations for budgeted and actual cost

The type of cost that is involved in allocation could be actual cost or budgeted cost. You can also allocate both budgeted and actual cost using the same allocation details.

• Specify the type of cost.

• Perform the allocation.

Transferring cost from credit cost elements

Instead of crediting the cost to be transferred from the source cost elements, the credit entries of the allocation can be posted on a credit cost element so that the original balances of the source cost elements are maintained.

• Specify the credit cost element details.

Transferring cost to debit cost elements

Instead of debiting the cost transferred to the target cost element, the debit entries of the allocation can be posted on a debit cost element so that the original balances of the target cost elements are maintained.

• Specify the debit cost element details.