Allocating Costs to Projects

Objectives

After completing this lesson, you will be able to:

  • Recall the main closing activities linked to projects
  • Allocate costs to projects

Project Allocations

An invoice was received for an advertising campaign linked to trade fairs. Initially, this was posted to the marketing department cost center.

You need a mechanism to include these kind of costs in the actual data on your projects. You use a distribution cycle to transfer such costs posted directly to the cost center onto the relevant projects based on logical rules you have predefined.

In complement to the postings that use a project as cost assignment during the period, there are some activities which can debit the project at period closing. Their purpose is to transfer costs that concern the project but, that were not entered directly during the initial journal entry. This can happen for example because the cost concerned many projects and the accountant entering the invoice didn't have the specific information on how to distribute the costs. With the available closing tasks, you can maintain a comprehensive analysis view and correct budget execution, tracking of all costs related to the projects.

The closing tasks to debit a project are:

  • Calculating additional overhead costs (not covered in this course)
  • Running allocation cycles

Allocation cycles transfer costs from a sender to a receiver based on predefined rules.

The allocation cycles that support WBS elements as receivers are the following:

  • Distribution
  • Overhead allocation
  • Intercompany allocation
Allocation TypePurposeAdvantage
DistributionAllocate primary costs using original accounts from senders to receiversKeep track of the original detailed postings even on receivers
Overhead allocationAllocate primary and secondary costs using overhead allocation accounts from senders to receiversUse secondary costs for the transfer, useful when the initial detail on receivers is not important
Intercompany allocationAllocate from one company to another only in the leading ledgerReceive costs from other companies of the organization

Run an Allocation

This is a quick run-through of the process to perform an allocation run.

Steps

  1. Open the Manage Allocations tile.

  2. Select the allocation type, and choose Go.

  3. Select your cycle.

  4. In the Create a new run window, check the selection of the cycle.

  5. Choose Test Run or Run depending on whether you want to affect the actual data or not.

  6. In the Run Allocation window, if needed, complete the Run name and the timeframe.

  7. Choose OK.

Result

The run result is displayed.

Note

It is possible to cancel a cycle using the Reversal Run option.

Analysis of Allocation Results

Once costs have been allocated, you need to focus on analyzing the results of such an allocation. Depending on your user and assigned role, you can use different apps dedicated to projects. You can either directly analyze the allocation flow or the allocation results, or, alternately, use a reporting app. In the first case, the Allocation flow and the Allocation Results apps quickly emphasize the senders and receivers and the amounts allocated per G/L account, using a graphical interpretation:

When using reporting apps to monitor the actual, planned, budget, and commitment data, you can select among the apps Project Cost Report, Project Budget Report, Project – Actuals, and Monitor Projects depending on your analysis needs.

Allocate Costs to a Project

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