Financial Allocations

Allocation is the process of distributing costs and revenues to the appropriate accounts, sub-accounts, cost centers, and projects. Use the GL Allocation activities (25.3.22) to identify types of cost and automatically distribute them to the correct cost targets.

Configure allocations using the following sequence of steps:

• Define the allocation structure. Allocation structures consist of a source, a target, and the transfer algorithm between them.

• Configure recursive allocations to reuse a previous allocation run as input for the next.

The allocation function recognizes direct and indirect types of cost.

A direct cost can be traced directly to the source. For example, when a department purchases office furniture for its own use, the cost is a direct cost. Direct costs can be further subdivided into:

• Assignable costs are charged directly to the account or sub-account without allocation.

• Shared costs cannot be directly assigned to a cost objective, but are charged instead to an intermediate cost pool.

An indirect cost cannot be traced directly to one source. For example, a company electricity bill covers the electricity usage for all company departments. Initially the bill is allocated to an overhead cost center, and later re-allocated over all the departments. You use allocation to distribute indirect costs to the various direct activities that benefited. For this, you must define a cost allocation plan.

The cost allocation process has three steps:

1 Classify Costs. Cost classification is the process of labeling direct and indirect costs relative to the cost allocation process.

2 Pool Costs. Cost pooling is the process of accumulating costs into pools for allocation. You must pool similar allocatable costs, which you can then combine to simplify the allocation process.

Cost items can be individually allocated or all cost items in the pool can be totaled and the total allocated. The decision depends on the reporting requirements and the level of budget control.

3 Allocation. You can allocate a cost if the goods or services involved are chargeable or assignable to a cost objective in accordance with relative benefits received. This measure of benefit is used to define the allocation algorithm.

An allocation consists of the following elements:

This is a factor applied to the source amount to calculate the amount to be posted to the target.

This consists of the COA elements, such as account, sub-account, cost center, project, or SAF, to which the fraction is to be posted.

The source is a value that is entered in the allocation definition, but which can still be changed during execution of the allocation batch. The value can be entered in the base currency or as a combination of base currency and quantity.

Standard charges are calculated as the multiplication of a quantity and a unit price. Both values are entered in the allocation definition, but can still be changed when the allocation is executed. The per-unit cost for electricity is an example of a standard cost.

Work Breakdown Structure (WBS) topics are used in budgets to provide analysis for budget costs, and are also used in allocations as a source type. WBS topics are combinations of COA elements, such as GL accounts, cost centers, projects, or SAFs.

The allocation source is calculated as the total of all postings on all the COA elements. The budget daemon calculates the values posted on all WBS topics and maintains up-to-date values before an allocation run. When using WBS topics as source, you can select whether to apply the balance, debit value, or credit value.

Important: If you disable the Budgeting module in System Maintain (36.24.3.1), you also disable to ability to create allocation transactions based on WBS topics.

Example: The WBS topic Housing Cost is defined in a budget and linked to the GL accounts 610100, 610200, 610300. The total of postings on those accounts is used to calculate the source value.

For more information on budgeting and WBS topics, see Setting Up Budgets.

The fraction can be a constant multiplier that is entered in the allocation definition and which can also be reviewed and changed during the execution of the allocation batch.

The fraction can be a real fraction defined by its numerator and denominator. Both the numerator and denominator are WBS topics from which the value or quantity is retrieved.

When the allocation is run, the source value is multiplied by the constant value and the real fraction.

A proportional fraction uses multiple fractions. Only the denominator is specified to calculate the fractions. The denominator is a WBS topic.

The numerators are implicitly defined based on the denominator. There are as many numerators (and, thus, fractions) as composing elements in the denominator.

You must define a posting template to specify how the amounts calculated by applying the fractions to the source amounts are to be posted.

Constant Value: The source is a constant value that can be modified before executing the allocation batch. The value can be entered as a base currency amount, or as a base currency amount with a quantity.

Standard Charge: The source amount is calculated as the multiplication of a quantity and a unit price. Both values are entered in the allocation definition, but can be modified before executing the allocation batch.

WBS Topic: The source amount is calculated by totaling the postings of the COA elements that comprise the topic.

This field is available when you select WBS topic as the source type. Specify a WBS topic from a Budget definition that has the Used for Allocation field selected. If this field is not selected when the topic is defined, it cannot be used in the allocation definition.

You do not need to enter budget data at this stage. The Allocation function uses only the WBS structure and the COA links. See Budgeting.

This field is available when you select WBS topic as the source type. Select the layer from which postings should be taken to calculate the source amount for the allocation.

This field is available when you select a WBS topic as the source type. Select from Balance, Credit, or Debit.

This field determines whether only credit activity, debit activity, or both (the balance) are used to calculate the source amount.

This field is available when you select WBS Topic as the source type. Specify the time period taken into account when the posting totals are calculated.

• Select GL Period to specify the period entered at the moment of the allocation run.

• Select YTD to specify the period from the start of the accounting year to the current date.

This field is available when you select WBS topic as the source type. Select from the following drop-down options:

Both: A base currency amount and a quantity are taken from the source and are allocated to the target.

BC Amount: Only a base currency amount is taken from the source and allocated to the target. The target posting does not include quantity fields.

Quantity: The target receives a base currency amount that is calculated by multiplying the source quantity by the fraction. The target posting does not include quantity fields.

This field displays the quantity value when you use a Constant Value or Standard Charge source type. This field is unavailable if the Source Type field is set to WBS Topic.

This field is available when you select Standard Charge as the source type. Specify a price in base currency.

Specify a base currency amount to be allocated. This field is available only when you select Constant Value as the source type.

When the source type is Standard Charge, this field displays the calculation of quantity multiplied by base currency price.

Constant Faction: The fraction is a constant that you specify in the Constant Fraction field.

Proportional Fraction: Only the denominator has to be specified. The numerators are derived from the denominator definition.

Use these fields to define the fraction numerator. The fields are available only when you select a fraction of type Real Fraction.

Use these fields to define the fraction denominator. The fields are available only when you select a Real or Proportional Fraction.

Specify a daybook template for the target posting. For constant factor and real fractions, the template also defines how the amount to be posted is prorated over the different posting lines of the template.

In the following example of a housing allocation cost, the amount to be posted is prorated as:

The Proportional Allocation tab displays the calculated amounts. This tab contains additional data for the allocation engine when calculating the proportional fractions.