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Defining and allocating costs

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Cost allocations move costs and revenues between cost types, cost centers, and cost objects. You can define as many allocations as you need. Each allocation consists of:

  • An allocation source.
  • One or more allocation targets.

The allocation source establishes which costs must be allocated, and the allocation targets determine where the costs must be allocated. For example, an allocation source can be the costs for the Electricity and Heating cost type. You allocate all electricity and heating costs to three cost centers: Workshop, Production, and Sales. These cost centers are your allocation targets.

For each allocation source, you define an allocation level, a validity period, and a variant as grouping identifier. You can use a batch job to set filters to select allocation definitions and then run cost allocations automatically.

For each allocation target, you define an allocation base. The allocation base can be either static or dynamic.

  • Static allocation bases are based on a definite value, such as square footage or an established allocation ratio, such as 5:2:4.
  • Dynamic allocation bases depend on changeable values, such as the number of employees in a cost center or sales revenue of a cost object throughout a certain time period.

The following table describes a sequence of tasks, with links to the articles that describe them.

Set up allocation source and targets

Each allocation consists of an allocation source and one or more allocation targets. The allocation source defines which costs will be allocated. The allocation targets determine where the costs will be allocated.

To set up cost allocations

  1. Choose the Lightbulb that opens the Tell Me feature. icon, enter Cost Allocation, and then chose the related link.
  2. On the Cost Allocation page, choose the Edit action.
  3. Enter an ID for the allocation source in the ID field.
  4. Define a level as a number between 1 and 99 in the Level field. The allocation posting will follow the order of the levels.
  5. Enter a cost type to define which cost types will be allocated in the Cost Type Range field. If all costs for a cost type are allocated, no range is defined.
  6. Enter a cost center together with costs to be allocated in the Cost Center Code field.
  7. Enter a cost object together with costs to be allocated in the Cost Object Code field. Most often, this field stays empty, because cost objects are rarely allocated to other cost objects.
  8. Enter a cost type in the Credit to Cost Type field. The costs that are allocated will be credited to the source cost type. The credit posting will be posted to the cost type given here.
  9. On the Lines FastTab, define the allocation targets. On the first line, enter a cost type in the Target Cost Type field. It defines which cost type the allocation is debited to.
  10. On the first line, enter the first allocation target in the Target Cost Center field or Target Cost Object the field. These two fields define which cost center or cost object the allocation is debited to. You can only fill in one of these fields, but not both.
  11. Repeat the same steps on the second line to set up additional allocation targets.
  12. After you have set up the allocation target and sources, choose the Calculate Allocation Key action to calculate the total share values.

Note

Select the Blocked check box to deactivate the allocation setup.

To set filters for dynamic allocation bases

The dynamic allocation method is based on changeable values. For example, the number of employees in a cost center or the items sold of a cost object in a specific time period. There are nine pre-defined allocation bases and twelve dynamic date ranges. You set different filters based on the allocation base.

Set filters

The following table shows which filters are possible for different allocation bases and which values are valid in the No. Filter and Group Filter fields. Select F1 in the Date Filter Code field to read detailed descriptions.

Base No. Filter Date Filter Code Cost Center Filter Cost Object Filter Group Filter
G/L Entries G/L Account Yes Yes Yes N/A
G/L Budget Entries G/L Account Yes Yes Yes G/L Budget Name
Cost Type Entries Cost Type Yes Yes Yes N/A
Cost Budget Entries Cost Type Yes Yes Yes Budget Name
No of Employees N/A Yes Yes Yes N/A
Items Sold (Qty) Item No. Yes Yes Yes Inventory Posting Group
Items Purchased (Qty) Item No. Yes Yes Yes Inventory Posting Group
Items Sold (Amount) Item No. Yes Yes Yes Inventory Posting Group
Items Purchased (Amount) Item No. Yes Yes Yes Inventory Posting Group

Scenario 1: Defining static allocations based on allocation ratio

Static allocation method is based on a definite value, such as square meters used, or an established allocation ratio such as 5:2:4.

This article describes how to define three new allocation target cost objects for the allocation source PROD cost center using the established allocation ratio 5:2:4. The three target cost objects are ACCESSO, PAINT, and FITTINGS.

Note

The example uses the demo data in the Business Central.

To define the allocation source PROD cost center on the General FastTab

  1. Choose the Lightbulb that opens the Tell Me feature. icon, enter Cost Allocation, and then choose the related link.
  2. On the Cost Allocation page, choose the New action.
  3. In the ID field, select Enter or enter an ID.
  4. In the Level field, enter 1.
  5. In the Valid From and Valid To fields, enter appropriate dates.
  6. In the Cost Center Code field, enter PROD.
  7. In the Credit to Cost Type field, enter the cost type 9903.

To define the allocation target cost objects on the Lines FastTab

  1. On the first line, in the Target Cost Type field, enter 9903.
  2. On the first line, in the Target Cost Object field, select ACCESSO.
  3. On the first line, in the Allocation Target Type field, select All Costs to define how all accrued costs are allocated.
  4. On the first line, in the Base field, select Static to use the static allocation method.
  5. On the first line, in the Share field, enter the allocation ratio 5.
  6. On the second line, in the Target Cost Type field, enter 9903.
  7. On the second line, in the Target Cost Object field, select PAINT.
  8. On the second line, in the Allocation Target Type field, select All Costs to define how all accrued costs are allocated.
  9. On the second line, in the Base field, select Static to use the static allocation method.
  10. On the second line, in the Share field, enter the allocation ratio 2.
  11. On the third line, in the Target Cost Type field, enter 9903.
  12. On the third line, in the Target Cost Object field, select FITTINGS.
  13. On the third line, in the Allocation Target Type field, select All Costs to define how all accrued costs are allocated.
  14. On the third line, in the Base field, select Static to use the static allocation method.
  15. On the third line, in the Share field, enter the allocation ratio 4.

Important

Business Central automatically calculates the Percent field using a percentage rate that is dependent on all three allocation ratios that are entered in the Share field for all three lines.

Scenario 2: Defining dynamic allocations based on Items sold

This topic shows an example of how to define allocations by using the dynamic allocation method. In the example, you change the dynamic allocation of the costs for the SALES cost center to support the new cost object IT EQUIPMENT. IT EQUIPMENT packages have item numbers in the range from 8904-W to 8924-W. You use the previous year’s sales figures to calculate the share. The allocation is posted to the helping cost type 9903.

Note

The example uses the demo data in the Business Central.

To define dynamic allocations based on items sold in the previous year

  1. Choose the Lightbulb that opens the Tell Me feature. icon, enter Cost Allocation, and then choose the related link.
  2. On the Cost Allocation page, choose the New action.
  3. In the ID field, select Enter or enter an ID.
  4. In the Level field, enter 1.
  5. In the Valid From and Valid To fields, enter appropriate dates.
  6. In the Cost Center Code field, enter SALES.
  7. In the Credit to Cost Type field, enter the cost type 9903.
  8. In the Target Cost Type field, enter the cost type 9903.
  9. In the Target Cost Object field, choose New to create a new cost object IT EQUIPMENT and fill in fields as necessary. Select IT EQUIPMENT. Leave the Target Cost Center field blank.
  10. In the Allocation Target Type field, select All Costs to define how all accumulated costs are allocated.
  11. In the Base field, select the allocation base Items Sold (Amount).
  12. In the No. Filter field, enter 8904-W..8924-W.
  13. In the Date Filter Code field, enter Last Year.
  14. Choose the Calculate Allocation Key action to calculate the share.

Important

Business Central uses the previous years’ sales figures to calculate a share of 1596.50 LCY with 100 percent for the IT EQUIPMENT packages. This means that all of the items sold last year will be allocated to the cost object IT EQUIPMENT.

See also

Setting Up Cost Accounting
Transferring and Posting Cost Entries
Accounting for Costs
Terminology in Cost Accounting
About Cost Accounting

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