Challenges in Handling Complex Rules of Cost Allocation


The most common cost allocations are related to reallocation of cost from shared service centers to other service centers and business units. There are three main types of cost allocation methods namely direct method, step-down method and reciprocal method.

The results of cost allocation will trigger the preparation of additional vouchers with a lot of accounting entries. Additional problems are that relevant voucher posting will affect inter-company current accounts, inter-company management fees, computation of staff incentive payments, taxation and consolidation adjustments of consolidated financial statements. Any additional adjustment will trigger a series of further adjustments.



It is highly expected that a system improvement project is able to eliminate most mechanical work in respect of cost allocation.



FESA Professional Accounting is a rule-based accounting system and not only allows for the configuration of different types of cost allocation rules very efficiently but also allows for them to be stored and reused. It is very useful when users want to avoid massive volume of adjustment vouchers posted to the ledger system during the monthly closing review.



The mechanical works in respect of cost allocation are eliminated and in addition, the readability of each account ledger is improved significantly as most of the dummy adjustment vouchers are removed by the ledger system.