The previous posts showed three different approaches how cost allocations in the cost accounting module can be made based on recorded project hour transactions. The approaches used

1. project hour quantities that were imported into the cost accounting module for making cost allocations based on the recorded project hour quantities,
2. project hour transaction vouchers that were generated by making use of the project module ledger integration, and
3. overhead rate policies that allocated the costs to other cost centers based on project hour quantities recorded in the project module.

 

A major disadvantage of the first approach is that the complete cost center costs of the car pool cost center are allocated to the other operative cost centers irrespective of whether those costs are too high or low compared to an external market price.

The second and third approach did not completely allocate the car pool cost center costs but did not provide a benchmark of the required cost rate needed to allocate the complete cost center costs.

In this post, we will investigate how such a benchmark can be obtained by making use of the overhead rate policy feature, which is described on a step-by-step basis in the following.

 

Step 1: Record hours in the project module

To get the cost allocation and overhead rate policy incorporated, hours are recorded in the project module first.

Please note that no additional projects and postings have been created but that the transactions shown and recorded in the previous post have simply been reused. The next screenprints consequently document the previous postings and resulting costs only.

 

Step 2: Setup statistical measure provider template

Also the second and third setup steps are identical to what has been shown in the previous posts. Therefore, reference is made to what has been described there and the following screenprints are included for reasons of completeness only.

 

Step 3: Setup statistical dimension measure

 

Step 4: Create cost accounting ledger

The set up of the cost accounting ledger slightly differs from the cost accounting ledgers that have been used before. That is because the project cost and payroll allocation accounts (853100 and 853200) have not been included in the cost element and dimension hierarchies used before. The next screenprints document the minor changes that have been made to the newly created cost element dimension (‘DEMF CE P16’) and the newly created cost element dimension hierarchy (‘DEMF CEH P16’).

 

Step 5: Create cost allocation policy

The cost allocation policy that is used in this post is identical to the one that has been used in post no. 14 except that the newly set up cost element dimension (‘DEMF CE P16’) is used.

 

Step 6: Create cost rollup policy

Also the cost rollup policy is identical to the one used in post no. 14 except for the newly set up cost element dimension hierarchy.

 

Step 7: Create overhead rate policy

The overhead rate policy used in this post differs from the one used previously in the overhead rate policy type (‘fiscal period’ vs. ‘user specified’). Because of the ‘fiscal period’ type selected, one cannot enter an overhead rate in the rule section, as D365 calculates the rates automatically.

 

Step 8: Process data in cost accounting ledger and configure workspace

After processing the data and policies and after setting up a cost controlling workspace, the following costs can be identified for the various cost centers used:

The next overview summarizes the cost allocations made.

From the previous screenprint it can be identified that two allocations were made; one in the project module for the hours recorded with a cost price of $180/hour and a second one in the cost accounting module, where all remaining costs of the indirect cost centers no. 110-130 were allocated.

Only the cost allocations made in the cost accounting module result in secondary cost transactions. The cost allocations made in the project module are considered to be primary costs from a cost accounting module perspective.

 

After allocating all costs from the supporting or indirect cost centers no. 110-130 to the direct operative cost centers no. 210-250, the initially raised question on the benchmark cost rate for the car pool cost center has not been answered. An investigation of the overhead rate policy form – shown in the next figure – allows answering this question.

The overhead rate policy form shows a cost rate of $1640.43 for 40 units (hours) of work for the car pool cost center. Dividing the amount by the units results in a rate of $41.01 per hour. Because the cost accounting module allocated the remaining costs only that were not previously allocated through the postings in the project module, the $41.01 represent a cost rate difference. That is, in order to allocate the full costs of the car pool cost center, a rate of ($180 + $41.01 =) 221.01 is required.

 

If a ‘fiscal period’ overhead rate policy is applied to the cost accounting ledger that has been used in the previous post no. 14, the same rate can be identified. For details, please see the next screenprint.

In the next post, we will investigate how cost allocations that are made in D365 can be tracked and analyzed. Till then.

In the previous post, we had a look at how transactions that were recorded in the project module can be used as statistical measure for making cost allocations. This post will introduce two alternative options that illustrate how those allocations can be made.

 

Option 1: Project module

A first possibility how cost allocations between cost centers – based on recorded project hours – can be made is through project costing vouchers. Those vouchers can be realized by making use of a project group that has the ledger integration parameter for hour related postings activated. This is the case for the projects shown in the next screenprint.

Posting the very same hour transactions for the car pool cost center manager that have been recorded in the previous post results in a voucher that is shown in the next screenprint.

The voucher above shows that a project cost account (no. 853100) is – in combination with the operative cost centers – debited. The credit transaction is made on another profit and loss (P&L) account (no. 853200). As the debit and credit ledger accounts are both P&L accounts, no effect on company’s profit arises. However, because of the financial dimensions used, an allocation from the car pool cost center costs to the other direct cost centers occurs. This allocation effect is illustrated in the next figure.

• A cost price of $180/hour has been setup in the project module for recording the project hours of the car pool manager.
• From a cost accounting module perspective, the cost allocations made in the project module occur at the primary cost level. That is because the cost allocations are made outside of the cost accounting module
• The cost center financial dimension of the car pool manager that is credited is set up at the employee level in the Human Resource module.

 

From the previous screenprint, one can identify that some costs remain at the car pool cost center no. 120. Those remaining costs are a sign that the cost price of $180/hour is not sufficient to allocate all costs from the car pool cost center to the other operative cost centers. Provided that the $180 is a market rate (price), the costs remaining on cost center no. 120 can be taken as a sign that the internal management of the car pool is more expensive compared to an external (outsourced) management of that cost center services.

 

Option 2: Cost accounting module

The second alternative for the cost allocation of the car pool cost center costs is the use of an overhead rate policy, which is exemplified in the next screenprint.

Making use of an overhead rate policy requires that a link to the statistical measure allocation base (‘4. PROJ HOURS’) is made (1). In addition, a secondary cost element that records the cost allocations (2) and the financial dimension to which the overhead rate is applied (3) need to be set up.

Most importantly, an overhead rate that is used for the creation of the cost allocations has to be determined (4). In the example shown above, a rate of $190 has been used to differentiate it from the cost rate that has been setup and used in the project module example shown before.

Similar to what has been shown in the previous post, a statistical measure provider template needs to be setup next for the transfer of the recorded project transactions (hours) to the cost accounting module.

The only difference in the setup of the statistical measure provider template used in this post compared to the one used in the previous post is that a range for the newly set up projects has been specified. This is necessary because the hours of the cost center manager have – for illustrative purposes – been recorded twice; a first time at the projects ending with the number 26ff and a second time at the projects ending with the number 27ff.

 

Processing the overhead rate policy through a cost accounting ledger results in the following costs for the different cost centers:

As shown in the previous posts, the next graphic summarizes the cost allocations made and the total costs that remain at the operative cost centers no. 210-250.

Please note that a rate of $190 is not sufficient for allocating all costs of the car pool cost center to the other ones. This can be identified by the $900 that remain at the car pool cost center after the allocations are made.

 

In the next post, we will investigate an approach that makes use of cost allocations in the project module and an overhead rate policy in the cost accounting module. Till then.