Indirect expenses such as utilities, building expenses, or other expenses that are not directly assigned to a profit center are allocated to multiple profit centers using a ratio. The ratio is set using multiple percentage values that must equal 100%. This method allows a user to post expenses to a single account but divide the values to multiple profit centers.
Some common indirect expense accounts are utilities, administrative labor, and other overhead. The direct expense accounts are normally numbers with an extension of -000. A profit center P&L report may contain direct and indirect expenses.
The example Monthly Profit & Loss By Profit Center report can be launched by selecting File -> Reports from the main EBMS menu and selecting Financials > Profit & Loss > P&L by Profit Center report options. For example in the following Monthly Profit & Loss By Profit Center report, the revenue, purchase, and labor accounts are configured as direct income and revenue with indirect expenses
being listed later in the report.
Note that the direct expenses are identified with a '-010' account extension and % Applied value is set to 100%. The Indirect expenses or overhead accounts can be allocated to the profit center based on a ratio as show in the % Applied column.
The indirect expense ratios that are used to allocate a portion of the costs to a specific profit center. The common percentages can be set within either of the following dialogs:
By clicking the Profit Center button within the General tab of the General Ledger Account record to open the following dialog:
Complete the following steps to set the indirect expense allocation for the G/L Account listed:
Verify the correct Fiscal Year. The ratio entered on this dialog is for a single fiscal year. The expense allocation can vary by month or year. Review the following Profit Center list dialog documentation (option B) for details on creating profit center allocation years or to copy ratios from one year to the other.
Enter a record for each profit center that is responsible for the expense within the G/L Account. Create a single record with a Yearly Percent of 100% if a single profit center is responsible for the entire cost amount. Enter the following information for each record:
Enter the Profit Center ID. Review Creating New Profit Centers for more details on creating profit centers.
Enter the indirect expense allocation Yearly Percentage for the profit center. The Yearly Percentage can be copied to the monthly ratios if the percentage is the same for each month.
Make changes to individual months if the indirect expense allocation is not uniform for the year.
The Remainder record will appear to balance the total Profit Center percentages to equal 100 percent as shown below:
Repeat these steps for each G/L Account within the profit and loss or income statement. This should apply to
all revenue and expense account listed on the P&L statement.
Review option B (next section) for instructions on time saving wizards to change a group of accounts rather than setting ratios by each G/L account individually.
Unlike the previous option, this option views the allocation percentages by profit center make it less obvious if a total of 100% was reached. Opening the dialog from the main EBMS menu to open
the following dialog:
Enter the desired Profit Center. Click on the look up button to view the list of profit centers.
Select the appropriate Fiscal Year. The default fiscal year will default.
Review the Unallocated G/L Balance details at the end of this section for details on the Unallocated G/L Percent setting.
Complete the following steps to enter the income and expense allocation for the selected Profit Center.
Add direct expense G/L accounts by launching the Add By G/L Code wizard. Select the Wizard button to launch the following dialog. Enter the range of G/L accounts
as well as the query Filter. The following filter will set the allocation Percentage to 100 for all accounts with an extension of -010.
Use the same wizard to add another Percentage rate for a group of G/L Codes.
Launch the Change by G/L Code wizard to make changes to a group of G/L Codes.
Add or change a range of codes for a range of months using the wizards or manually setting the allocation percentages.
Validate that all the account validation equals 100% by printing the report launched from the main EBMS menu.
The recommended method is to allocate all expenses and income to profit centers. Run the report to verify that the total ratio for every revenue and expense
account equals 100%. A lump allocation percentage can be set for expenses and income amounts that are not allocated to profit centers(s) (>100%). Set the Unallocated G/L Percent value on the header of
the Profit Center dialog as shown below:
The example shown above will expense a total of 25% of the total unallocated amounts at the bottom of the profit center report. Launch the report and enable the Show Unallocated option on the report prompts as shown below:
Note the additional Unallocated line at the end of the following profit and loss statements:
Review Fine Tune Indirect Cost Ratios to complete the process.