Common Uses for Corporate Allocations

Apportioning Expenses

If costs are posted to an expense account as a total, it may be necessary to apportion the total expense to each relevant cost centre to reflect each cost centre's operating costs accurately. This can be done in a variety of ways:

By Applying Percentages

You can define a percentage amount to be applied to each cost centre. The percentage of the source amount is then allocated to the relevant cost centre. The percentages may be maintained in memo accounts, along with any analysis to identify which cost centre the percentage applies to. During Allocation Run, the memo account is used to provide the appropriate percentage and code for each cost centre selected.

By Applying Ratios

As with percentages, ratios are defined in memo accounts. However, ratios can be used where the basis for the reapportioning is not in monetary units. For example, you can reassign a rental expense to each cost centre, depending on the floor space each cost centre occupies. In this case, the cost to each department would be calculated as a ratio of floor space. You need to retain in a memo account the square footage figures by cost centre.

By Fixed Amounts

Fixed amounts can be used for expenses which are predetermined. For example, a head office might apply a fixed monthly management charge to each cost centre for the services they provide.

Apportioning Inter-Company Costs

Corporate Allocations fully supports inter-company processing. Allocations and charges can be made across business units. The allocation postings can be placed on transfer files for distribution to remote sites where they are posted using Ledger Import (LIM).

Postings to inter-company offset accounts can be generated automatically to keep each business unit in balance.

Calculating Commissions

Corporate Allocations can be used to generate and post commissions or any other derived values. A threshold can be applied in an allocation source, which can determine, for example, the level of commission to apply.

Calculating Interest Charges

You can use Corporate Allocations to automate the generation of interest on loans. For example, you can charge interest on loans to staff, or on outstanding inter-company balances. The allocation source is the average balance of the loan, while the ratio gives the appropriate interest calculation.

Uplifting Budgets

You can use Corporate Allocations to uplift budgets. You can take actuals for the source time scale, and uplift the figures to inflate the budget by a percentage. This could be used for example, where the first quarter actuals were out of line with budgets, to adjust budgets for subsequent periods. In this case, post percentages of e.g. 110.00 or 120.00 to uplift by 10 or 20 percent.

Measuring Performance

Although performance measurement varies considerably from one organization to another, it primarily uses non financial measures. Such information can be recorded on memo accounts in SunSystems. Corporate Allocations can base calculations on non financial information contained in these memo accounts.

Activity Based Costing - ABC

The principle of activity based costing is the allocation and apportionment of overheads to the cost of producing a product or providing a service. In many manufacturing environments, overheads are allocated across departments on a simple volume basis. ABC aims to diversify the methods used to distribute costs and to pay more attention to cost types and cost behaviour. ABC recognizes the roles fixed and variable costs have in business decision making and requires the use of different allocation and apportionment methods.

Activity based costing reports can be generated by combining the information held on your ledgers with non financial information held on memo accounts.

You can use any number of allocation setups to allocate expenses. Once you have set up your allocations, you can easily analyze the costs in a form that meets your business decision making needs.