Only include payroll hours - if the staff members providing payroll services also perform other duties, do not include the other duties. If you do not have this level of timesheet data, it will be important to establish a process for hourly timesheet reporting over multiple pay periods to ensure accurate data collection. Conduct a periodic timesheet analysis to determine how the payroll staff spend their time over the course of a typical period such as a quarter and update this analysis at least once or twice a year.
Use the same method to calculate the maintenance costs for facilities that are shared by multiple departments. This example is for a hypothetical City Hall. Be sure to include the costs of materials and any contractors that provide janitorial or other facility maintenance services. Next, determine a fair and equitable way to spread those costs among the various departments, funds, or programs that benefit from the shared services.
Use numbers that are easy to gather or estimate and that can be easily updated in the future to keep the cost allocation plan current. Remove any costs that should not be allocated, costs that can be assigned directly, and any other agreed upon revisions that do not diminish the "cost-basis" of the plan.
Payroll costs largely depend on the number of employees your jurisdiction has, so the allocation factor is typically full-time equivalent FTE positions. This means that the cost of the payroll function is allocated to the different departments based on the number of FTEs within each department.
Facility maintenance costs depend in large part on the size of the facility, so the allocation factor for facilities maintenance is typically square footage SF. This means that the facility maintenance costs for City Hall are allocated based on the number of square feet that each department occupies. Next, allocate the costs by applying the allocation factors to each department, program, or fund based on their proportionate share a "one-step" methodology.
Again, be sure to thoroughly and consistently document your calculations. Larger or more complex organizations would typically use either a "two-step" methodology allocating overhead costs to direct users and to those departments that use the services of the direct users or reciprocal allocation methodology allowing for overhead to be allocated back and forth between departments. The payroll overhead costs are being allocated on the basis of FTEs per department.
The following chart shows what that might look like based on the size of the departments in this example. Note that the Finance and Payroll Department cannot allocate all of the payroll costs to other departments and must retain some of those costs internally, because some of the time is spent on payroll for employees within the department. The facility maintenance costs for City Hall are being allocated on the basis of square footage per department.
The following chart shows what that might look like based on the how much space each department occupies within City Hall. You should periodically review your cost allocation formulas and data to make sure they continue to accurately reflect costs. Centralize and standardize the month-end close. Automate manual processes and optimize time. Unify intercompany accounting for global alignment. Orchestrate and automate SAP close activities. Accelerate cash collections and optimize working capital.
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For small business Overview Improve your cashflow Keep track of payments Reduce costs Reduce failed payments Increase conversions. For enterprise Overview Reduce churn Reduce international barriers Reduce operational costs Reduce time to get paid Reduce conversion risk. Breadcrumb Resources Accountants. Table of contents. How to calculate allocations Usually, determining allocations involves some amount of estimation and guesswork.
We can help GoCardless helps you automate payment collection, cutting down on the amount of admin your team needs to deal with when chasing invoices. Accounting for these costs is fairly simple. Indirect manufacturing costs also called manufacturing overhead or overhead include electricity to run the factory, rent for the factory building, and factory maintenance.
These costs are not easily traced to products and pose a much more complicated challenge for SailRite. Accounting for indirect manufacturing costs typically requires allocating overhead using predetermined overhead rates. Why do managers insist on allocating overhead costs to products? Answer: Three important reasons that managers allocate overhead costs to products are described in the following:.
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