How to Set up Fixed and Variable Allocations in Microsoft GP

Every business needs to allocate their overhead to effectively cost their products. By allocating your overhead to different departments or divisions the owners and managers can watch for trends and make better informed decisions.  Within Microsoft Dynamics GP, this can be done in one of two ways.

First, we need to go over what an allocation account is. An allocation account within GP is a special type of “virtual” GL account that will automatically distribute the posted dollar amount to other GL accounts according to your allocation method.  Nothing actually gets posted to the allocation account, it only handles the distribution. Within GP, there are 2 methods to allocate these accounts.  Allocation can be assigned using one of the following methods:

1. Fixed Allocation – Allocations are based on fixed percentages that are predetermined at the time of setup.

2. Variable Allocation – Allocations are based on balances in other accounts as opposed to fixed percentages.

This feature is very helpful for month-end or year-end entries, since it creates the allocation entries and you do not have to manually create them yourself.  The examples below will show how to setup the 2 methods in GP.

 

Scenario 1 (Fixed Allocation)

Suppose a company needs to pay its utilities expense at head office and the cost needs to be split among the various departments within the head office. The costs of the utilities expense need to be shared between the Accounting, HR and IT department. The allocation assigned to the departments will be based on pre-determined rates.

In this scenario, the rates for the utilities expense are fixed and predetermined which means that we will use the Fixed Allocation method. To setup Fixed Allocations in GP, please do the following:

1. Open GP and go to the Financials tab

2. Under the Cards section, click on Fixed Allocation

3. In the pop-up, type in the account that you want to use as your posting allocation account and enter a description at the bottom

4. Then, assign the various segments to the allocation and type in the percentage that will be allocated (Note: The total percentage must to be 100%)

5. Once the allocations have been assigned, hit Save and the setup is completed

 

Scenario 2 (Variable Allocation)

Suppose a company needs to pay its rent expense at head office and the cost needs to be split among the various departments within the head office. The departments share the office space, but there is some extra space in the building as well that the departments use on a seasonal basis. As such, the costs of the rent expense need to be adjusted between the various departments based on the amount of square footage that each department uses. Because of this, the total rent cost will vary from month to month and will need to be adjusted.

In this scenario, the rates for the rent expense will vary month to month because the rent is based on the amount of square footage that the departments use. Which means that we must use the Variable Allocation method. To setup Variable Allocations in GP, please do the following:

1. Open GP and go to the Financials tab

2. Under the Cards section, click on Variable Allocation

3. In the pop-up, type in the account that you want to use as your posting allocation account and enter a description at the bottom

4. There is also an option to calculate the cost based on the year to date amounts or the transaction period amount. In our scenario, we will use the Year-to-date amounts since the extra space is used seasonally

5. Enter the distribution account where you want the allocations to be recorded to and enter the breakdown account, or the account that calculation will be based on, in this case the amount of square footage for each department

6. Once the allocations have been assigned, hit Save and the setup is completed