Allocating Unallocated Costs - Reconciling to the Ledger

Overview


Not all costs have an appropriate volume measure that can be used to measure or proxy the cost. As an example, most volume measures are associated with costs that would be classified as variable. Fixed costs are typically not volume driven costs, and therefore cant be calculated using a volume.

Even in the case of variable expense, the expense may be fixed over a given range. Consider IT expense. The number of hours allocated each month will fluctuate, however, the IT staff may remain reasonably constant. That is, every month there will be a mismatch between the caculated IT costs using volumes, and the expense that is logged in the general ledger. There will be a residual, which will change every month.

If a firm wants to allocate all costs, it must decide how to allocate these unallocated costs. This process is fairly subjective.

Implementation


The following is a simple example of constructing a function which takes an unallocated amount and creates a series of records that allocates out the expense to a set of divisions. The logic is based on a fixed set of pre-defined percentages. 


let expense = 10000;

function allocateUnallocatedIT(amount){
  return [
    { value: amount/10, department:'marketing'},
    { value: amount/10, department:'treasury'},
    { value: amount/80, department:'morrgage'},
  ]
}
Try it!

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