Allocating Administrative Costs to a branch or a division is usually done at the end of each month based on the percentage of revenue for the branch. Another way companies do the allocation calculation is at fiscal year budget coming up with the allocation of costs for each branch based on that branch’s anticipated revenue and the anticipated corporate expenses. Then this becomes more of a recurring journal entry. Below are the necessary steps to create this allocation in WinTeam.
- Create a GL Account number for the Allocated Overhead. This is an expense account. Place this GL Account before the Other Income/Expense section of the Profit and Loss Statement.
Example: GL Number 6100 Administrative Allocation.
- Determine the total administrative costs by running a P & L. Once the amount is determined, allocate the cost by a % to each division or branch. Sometimes this is based on the amount of revenue generated at each branch.
Example: Total Administrative Cost (Job Number 953) is $96,000.00
Branch Revenue
Branch Revenue % of Revenue Omaha (Job # 110 $500,000.00 43% Lincoln (Job # 210) $250,000.00 22% Des Moines (Job # 310) $400,000.00 35% Total Revenue $1,150,000.00 100%
Example: Use the Revenue Percentages to calculate the amount of Administrative Costs to allocate to each branch.
Branch Revenue % of Revenue Omaha (Job # 110 $41,280.00 43% Lincoln (Job # 210) $21,120.00 22% Des Moines (Job # 310) $33,600.00 35% Total Revenue $96,000.00 100%
- Create an Adjusting Journal Entry to allocate the cost to each division or branch.
Example:Journal Entry
GL Number Job Number Debit Credit 6100 110 $41,280.00 6100 210 $21,120.00 6100 310 $33,600.00 6100 950 $96,000.00
- The result of these entries on the P & L for Administrative Cost (Job 253) the total amount is zero instead of a loss. By doing the entry above you still have the cost of each administrative expense account showing the actual amount. When you run the P & L for each branch you will see a new line item on the P & L for Administrative Allocation.