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Intelligent Technologies, Inc.

How to Allocate Overhead in Microsoft Dynamics GP and Management Reporter


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Many companies “departmentalize” their financial statements.  By that I mean, they have a Chart of Accounts with a segment for the department so they can easily run Income Statements showing profit and loss for each department. For instance, account 000-6100-00 might be Salaries Expense for the Administrative Department (overhead), while 100-6100-00 might be Salaries Expense for the Manufacturing Department and 200-6100-00 Salaries Expense for Consulting Department.  This method works well and makes it very easy to write departmental profit and loss statements with tools such as Microsoft Dynamics GP’s Management Reporter 2012.

 

However, what happens when the CEO wants to allocate those Administration Department costs to the “revenue-producing” departments?  You probably find yourself wondering, “How do we allocate these costs while still preserving the categorization that tells us where these costs originated from?”  It’s times like these where the Allocation Accounts tool, a sometimes overlooked feature in Microsoft Dynamics GP really comes in handy.

 

If you’re unfamiliar with them, Allocation Accounts can be a real time-saver. They come in two varieties:  Fixed and Variable.  Fixed Allocation accounts are simpler, and are what I’ll use for illustrative purposes in the example below.  Variable Allocation accounts are a little more complex, because instead of relying on fixed percentages, they rely on balances in other accounts to calculate allocation amounts.

 

Now that you know what Allocation Accounts are, let me show you how to use them. First, set up a Fixed Allocation account number, using the same account structure (length/segments) as your regular posting accounts.  Then, choose which posting accounts this Fixed Allocation account will split the dollar amounts among, and in what percentages. See below for a screen shot.

 

The accounts that the costs split between are called distribution accounts and they are regular posting accounts.   In this case, anything posted to account 999-6999-00 is actually split out to three different departmental accounts:

Alloc

 

Remember, the three distribution accounts are regular posting accounts, while 999-6999-00 is a Fixed Allocation account.  This means that any time you post to account 999-6999-00, it will post the dollar amount to those three distribution accounts in the percentages assigned.  Let’s say that Department 000 is your Admin department which is strictly overhead, so its costs are split out to departments 100, 200 and 300.  If you wanted to keep detail in Department 000, yet allocate out that department’s net loss to the revenue-producing departments you could run the departmental financial statement for the 000 department once the fiscal period is complete.  Then, post a credit to the Overhead Allocation account 000-6999-00 for the amount of the department’s net loss and debit Fixed Allocation account 999-6999-00.  This would give you a line on the departmental P&L statements for Overhead Allocation, with the credit on Department 000’s report and corresponding debits on Departments 100, 200 and 300.  The consolidated report (departments 000, 100, 200 and 300) would not have the Overhead Allocation line on it because the balance of all four departments’ accounts added together is zero.

 

I must mention that there are many different ways of allocating costs and many tools to help with it built into Microsoft Dynamics GP.  This is just one simple example of how I like to use allocations for overhead expenses.  However, depending on how you want your costs split and the level of detail you need to preserve, here are a few other allocation tools you may want to take a look at:

 

  • Fixed Allocation Accounts
  • Variable Allocation Accounts
  • Clearing Entry

 

Looking for other information on Dynamics GP or Management Reporter?  Please visit our website.

At Intelligent Technologies, we have extensive experience with Microsoft Dynamics Great Plains and Management Reporter 2012. Whether you are new to Dynamics GP and Management Reporter, or you simply need help ensuring that you’re making the most of your financial software, we can help.  Contact us today to discuss your specific needs.

 

by Beth Hodge, Microsoft Business Management Solutions Professional, Intelligent Technologies, Inc., a South Carolina Microsoft Dynamics GP reseller.

www.inteltech.com

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