登录查看更多内容

How do you allocate costs to regions effectively?

由人工智能和领英社区提供技术支持

If you run a business that operates in multiple regions, you need to allocate your costs accurately and fairly. Cost allocation is the process of assigning indirect or shared expenses to different products, services, departments, or regions based on their usage or benefits. This helps you measure profitability, set prices, and manage budgets. However, cost allocation can be challenging and complex, especially when you have to deal with different currencies, tax rates, and exchange rates. In this article, we will explain how you can allocate costs to regions effectively using some best practices and methods.

此文章中的业界达人

由社区从 8 条内容中精选。了解更多

1 Understand your cost drivers

The first step in cost allocation is to identify and measure your cost drivers. Cost drivers are the factors that cause your costs to vary or increase. For example, if you have a sales team that travels to different regions, their travel expenses are a cost driver. You need to know how much each region contributes to your total travel costs and how that affects your profitability. You can use various methods to measure your cost drivers, such as activity-based costing, direct tracing, or driver tracing. The method you choose depends on the availability and accuracy of your data and the complexity of your business.

添加您的观点

Asha Kanta Sharma

Manager - Finance & Accounts @ Opendoors Fintech | Financial Accounting
举报内容
Allocating costs to regions is crucial for accurate financial reporting, performance analysis, and decision-making. It involves categorizing costs into direct and indirect categories, understanding cost drivers, defining allocation bases, allocating direct costs directly, and allotting indirect costs. Consider Activity-Based Costing (ABC) for more accurate insights. Use geographical factors relevant to your business, evaluate external benchmarks, review and adjust regularly, document allocation methods, communicate with stakeholders, conduct sensitivity analysis, use technology solutions, factor in currency exchange rates, evaluate legal and regulatory compliance, monitor performance metrics, align with strategic objectives.

已翻译

赞
Kelly G. Peters, CPA, CMA

Principle, TCI Solutions, LLC
举报内容
Before you worry about cost drivers, you need to pool your costs into homogeneous pools. Don't have a lot of small pools. Once the pools have been established you need to analyze the appropriate allocation base for the majority of costs within the pool. An example are fringe costs (vacation, S/L, holidays, payroll taxes, health insurance, pensions, etc.). Some of these costs are driven by the employee's salary and wages. Some by headcount. Choose the allocation base between the two, picking only one. It should be the cost driver for the majority of the cost within the pool.

已翻译

赞

2 Choose your allocation basis

The next step is to choose your allocation basis, which is the criterion or measure that you use to distribute your costs among your regions. For example, you can allocate your travel costs based on the number of sales calls, the revenue generated, or the time spent in each region. The allocation basis should reflect the causal relationship between your cost drivers and your regions. It should also be consistent, fair, and easy to understand and apply. You can use different allocation bases for different types of costs, as long as they are relevant and appropriate.

添加您的观点

Ken Vickers, CPA, MBA, CGMA

VP, Finance and Corp Controller @ Incora |
举报内容
In choosing your allocation basis, think of yourself as a navigator charting a course through complex terrain. Allocate travel costs by sales calls, like counting steps on a rugged trail. Using revenue? It's like gauging distance by the peaks you've conquered. Allocating by time is measuring the journey's duration against the sun's arc. Your allocation basis is your compass. Each method - sales calls, revenue, time - guides you differently. This isn't just number-crunching; it's a deep dive into your business's heartbeat. Select a basis that's consistent, fair, and clear, akin to a well-mapped route. Tailor your methods for different costs, always ensuring they align with your journey's purpose. Navigate wisely.

已翻译

赞
Kelly G. Peters, CPA, CMA

Principle, TCI Solutions, LLC
举报内容
USG Cost Accounting Standards have a hierarchy of conditions for assigning costs to benefiting segments for each pool. They most frequently like direct assignment (when that is economical). Labor pools should be allocated on direct labor hours or dollars. Material pools should be allocated on direct material costs. Next is a consumption basis. Then an output measure. Lastly is a surrogate measure that most closely is associated with the pooled costs. This is probably a good standard to use in commercial companies.

已翻译

赞

3 Convert your costs to a common currency

If you operate in regions that use different currencies, you need to convert your costs to a common currency for comparison and reporting purposes. You can use either the historical exchange rate or the current exchange rate to do this. The historical exchange rate is the rate that was in effect when you incurred the cost, while the current exchange rate is the rate that is in effect when you allocate the cost. The choice of exchange rate can affect your cost allocation results and your profitability analysis. You should use the same exchange rate method for all your costs and regions and update it regularly.

添加您的观点

Kelly G. Peters, CPA, CMA

Principle, TCI Solutions, LLC
(已编辑)
举报内容
This is really not as much of a problem as it is made out to be. Costs and overhead pools are defined within the segment they are incurred. Foreign exchange can either be hedged or be incurred by the customer instead of the company. The segment (whether a business unit or a headquarters) must record costs with one currency for which they are obligated to report financial performance to investors.

已翻译

赞

4 Adjust your costs for tax differences

Another factor that can affect your cost allocation is the tax differences among your regions. Different regions may have different tax rates, tax laws, and tax incentives that can influence your costs and profits. For example, if you have a region that offers a tax credit for research and development, your R&D costs in that region may be lower than in other regions. You need to adjust your costs for tax differences to ensure that you allocate them fairly and accurately. You can use either the gross-up method or the net method to do this. The gross-up method adds the tax effect to your costs before allocation, while the net method subtracts the tax effect from your costs after allocation.

添加您的观点

Kelly G. Peters, CPA, CMA

Principle, TCI Solutions, LLC
举报内容
Taxes should be ignored in allocating costs to segments. Taxes are applied on your success. Fines are applied upon doing something contrary to public policy. They are a cost of doing business and need to be pooled and allocated separately on an appropriate allocation basis.

已翻译

赞

5 Review and communicate your cost allocation

The final step in cost allocation is to review and communicate your results. You should check your cost allocation for accuracy, completeness, and reasonableness. You should also compare your cost allocation results with your budget, your actual performance, and your industry benchmarks. You should identify and explain any significant variances or anomalies and take corrective actions if needed. You should also communicate your cost allocation results to your stakeholders, such as your managers, your employees, your customers, and your regulators. You should explain the purpose, the method, and the impact of your cost allocation and address any questions or concerns they may have.

添加您的观点

Kelly G. Peters, CPA, CMA

Principle, TCI Solutions, LLC
举报内容
Two things impact cost allocations to business segments: 1) The pool amount; and 2) the allocation bases. Comparing and controlling the pool against budget and affordability is something the responsible manager can do and control. Changes in the different allocation base from each segment is not. This doesn't mean that both need to be understood, reconciled and communicated to those impacted.

已翻译

赞

6 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?

添加您的观点

Siavash Eftekhari

Financial & Economic advisor to Board of Directors at CinnaGen Co.
举报内容
In allocating costs to regions effectively, understanding cost drivers is crucial. Identify factors causing cost variations between regions and choose a suitable allocation basis. Options include direct tracing, indirect tracing using a proxy measure, and reciprocal allocation for interrelated cost pools. Convert costs to a common currency using exchange rates and adjust for tax differences, considering regional tax rates and using tax treaties to avoid double taxation. Additionally, consider geographical factors, use external benchmarks, regularly review and adjust methods, document processes for transparency, communicate with stakeholders, conduct sensitivity analysis, leverage technology for automation.

已翻译

赞

Accounting

+ 关注

给文章评分

我们借助人工智能创建了此文章。您认为这篇文章怎么样？

很棒不太好

举报此文章

查看全部

How do you allocate costs to regions effectively?

1

2

3

4

5

6

1 Understand your cost drivers

2 Choose your allocation basis

3 Convert your costs to a common currency

4 Adjust your costs for tax differences

5 Review and communicate your cost allocation

6 Here’s what else to consider

Accounting

给文章评分

感谢您的反馈

更多Accounting相关文章

更多相关阅读内容