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 kinds of costs in the actual data on your projects. You use an overhead allocation cycle to transfer such costs posted directly from the cost center to 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 that 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 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 Type | Purpose | Advantage |
|---|---|---|
| Distribution | Allocate primary costs using original accounts from senders to receivers | Keep track of the original detailed postings even on receivers |
| Overhead allocation | Allocate primary and secondary costs using overhead allocation accounts from senders to receivers | Use secondary costs for the transfer, useful when the initial detail on receivers is not important |
| Intercompany allocation | Allocate from one company to another only in the leading ledger | Receive costs from other companies of the organization |
Overhead allocation cycles are managed using the Manage Allocations app. To perform a run for your allocation cycle, you can use the Run Allocations app.
Note
To learn more about overhead allocation cycles, see the section Explaining Cost Center Accounting in the unit Performing Event-Based Actual Postings on Cost Centers.
