POOL SETUP TIPS

Although setting up cost pools and service centers is intimidating to most people, it is reasonably straightforward in Costpoint. You set up a cost pool by defining the following:

• Which account/organization combinations form the numerator or COST portion (costs to be allocated)

• Which account/organization combination contains the CREDIT for the costs being allocated from the pool

• Which account/organization combinations form the BASIS or denominator (the costs or hours on which the allocation is based)

• Which account/organization combinations receive the ALLOCATION (debit allocation accounts)

The standard equation used in the allocation of cost pools is provided as follows, specifying the factors involved in the setup process:

Rate or %             =          Account/Organizations containing COSTs to be allocated

                                         Account/Organizations forming the BASIS (that is, Direct Labor)

The pool is CREDITed for the entire amount of the numerator and the debit (or allocation receipt) is made to the account/orgs specified as the DEBIT ALLOCATION account/orgs.

Employee Benefit Pool Example

Rate or %             =          Account/Organizations which contain Employee Benefit costs

                                         Account/Organizations which contain Direct and Indirect Labor

Because you cannot allocate employee benefits to the direct and indirect labor account/organization combinations directly without distorting the amount of labor dollars in those accounts, you must define a separate set of account/organizations to receive the employee benefit allocation. You can then use these debit allocation accounts in the pool or base of other pools, if it is necessary.

Pool Setup Basics

In order to create a cost pool in Costpoint, certain information is required. Combined, this information defines the pool. The pieces include:

• Allocation Group Number

• Pool Number

• Sequence Number

• Fiscal Year

The allocation group number defines the pool as one that is used in the allocation of amounts to projects or simply as an "informational" pool used only for providing information to management. Allocation Group 1 is the only group whose pools allocate costs to projects. All other allocation groups (2 and above) are considered informational only — a Statement of Indirect is produced, showing the rate that was calculated, but they are not used to allocate to projects.

Some examples of using allocation groups other than Group 1 include:

• Providing divisional or organizational views of a company-wide pool

• Providing company-wide views of divisional or organizational pools

• Providing a forecasting or "what if" tool for anticipating rate modifications that result from modifications in the composition of a pool

The pool number defines which number in the "set" or group of pools that a particular pool is. Pool numbers do not have to be sequential. A valid set of pool numbers could be: 1=Fringe Full Time; 2=Overhead; 3=General & Administrative; and 4=Fringe Part Time. The pool number does not affect the order in which the pools are processed. 

The sequence number defines the order or sequence in which a pool is allocated within the "set" or Group to which it belongs. It is very important to make sure that your pools are processed in the proper order so that accurate rates are produced. You can modify sequence numbers as often as necessary. You can individually modify the sequence number in each pool or use the Manage Pool Processing Sequence Numbers screen. If you modify the sequence numbers of your pools, be sure to execute the Build Rate Application Table screen before you attempt to recompute the indirect rates. Using the previous example of pool numbers, you could use the sequence numbers to make sense of the allocation scheme:

The fiscal year defines the length of time that a pool is active. If the same pool is active for multiple fiscal years, you must clone it from fiscal year to fiscal year. You can clone pools by using either the Clone feature on the Manage Cost Pools screen or by using the Copy Pools toolkit.

Once the pool is created, by virtue of the fact that it has an allocation group number, pool number, sequence number, and fiscal year, you can specify other key information about it on the main Manage Cost Pools screen. This information includes the long name of the pool (which prints on various project reports such as the Project Status Reports and the Statement of Indirects), a description of its basis (direct labor, total labor, total cost, labor hours, etc.), a basis type (hours, dollars, or units), and three other pieces of information:

• Service Center — This distinction is made between two types of allocations — allocations that use accounts and organizations as a base and calculate a rate with a Statement of Indirect Expenses generated or allocations that are not based on hours or dollars (they are based on head count or square footage, or some kind of units) and do not calculate a rate or generate a Statement of Indirects. Service Centers are often used to allocate facilities expenses or photocopying expenses. 

• Apply Rates to Projects — This distinction is made for "regular" pools only (not service centers) and describes whether the calculated rate is used to apply costs to projects or whether it is just presented on the Statement of Indirects but not used to apply costs to projects. This feature is specifically designed for intermediate pools that cannot allocate to projects. Intermediate pools are usually used to reclassify costs for financial statement presentation.

• Unallowable — Select this check box on the Manage Cost Pools screen to designate this pool as unallowable, which means that no revenue calculations are performed on this pool. Selecting this check box has the same effect as placing a burden cost ceiling of zero on every project and account that is burdened by a particular pool. For example, your company may want to capture entertainment costs in an unallowable pool. This pool would then allocate to the projects in the base to reflect the true cost of the project. However, no revenue would be generated from this burden. Be sure to not enter any burden cost ceilings for pools designated as unallowable because this slows some of the processes.

In addition, if you plan on using the Create Cost Transfer Journal Entries screen, you must complete the Debit Account and the Credit Account fields in the Financial Statement Reclass Accounts group box on the Manage Cost Pools screen. When the cost of a project is charged to the performing orgs and the revenue is collected by the owning organization, the Cost Transfer Journal entry reallocates the cost from the performing organization to the owning org. You can then print income statements by organization. The direct and indirect costs are reallocated during this process, and the program uses the accounts entered in this screen to reallocate by pool.

After you have provided all of this information for a given pool, you must finish setting up the Cost Account/Organizations, Base Account/Organizations, Allocation Account/Organizations, and Credit Account/Organization. Assign these account/organization combinations in the subtasks on the Manage Cost Pools screen. When you finish, you are ready to process your pools. The remaining part of this topic examines cost accounts, credit accounts, base accounts, and debit allocation accounts.

How to Specify the Pool Cost Accounts

How To Specify the Pool Base and Allocation Accounts

How to Specify the Credit Account

How to Set Up Target and Provisional Rates

How to Set Up Service Centers

Troubleshooting Your Pool Setup