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Cost types, cost centers cost drivers
hvdhoeven
Member Posts: 99
Hello all,
I'm a lecturer at a Dutch University of Applied Sciences and we're using NAV 2009 R2 for educational purposes.
In my country all text books about accounting focus on cost types, cost centers and cost drivers (NAV says: cost objects). Cost objects in the meaning of products which are responsible for costs.
In the books I read that companies post their cost invoices to a G/L account for cost type and attach one (1) cost center at the same time. Cost center = dimension.
The next step is to divide the costs that are posted to a certain cost center to the other cost centers, in order to make up financially for the services the (first) cost center (department) has given to the other cost centers. All other cost centers do the same and at the end all costs are divided to two main cost centers: Production and Sales.
The next step is that these costs are posted to the manufacturing order (as sort of indirect manufacturing costs). The Sales cost center sends its costs to the billing process: these costs are posted as a part of the COGS.
My questions for the financial consultants are:
1) Do you recognize the process I have described?
2) Do companies still use these processes nowadays? If not, how can they measure the efficiency of the departments (cost centers)?
3) Is it possible for a company to connect an incoming cost invoice to all concerned cost centers when posting the invoice to the G/L?
I understand that it is a possibility (technically in NAV), but does the employee who posts the invoice really know to which cost centers he has to post which amounts?
4) Which definition would you connect to the term Cost Driver?
5) Are there any ideas you see in daily practice, which could help me with this subject?
A lot of questions, but I hope to get some reaction from you all.
Thanks a lot!
Hans
I'm a lecturer at a Dutch University of Applied Sciences and we're using NAV 2009 R2 for educational purposes.
In my country all text books about accounting focus on cost types, cost centers and cost drivers (NAV says: cost objects). Cost objects in the meaning of products which are responsible for costs.
In the books I read that companies post their cost invoices to a G/L account for cost type and attach one (1) cost center at the same time. Cost center = dimension.
The next step is to divide the costs that are posted to a certain cost center to the other cost centers, in order to make up financially for the services the (first) cost center (department) has given to the other cost centers. All other cost centers do the same and at the end all costs are divided to two main cost centers: Production and Sales.
The next step is that these costs are posted to the manufacturing order (as sort of indirect manufacturing costs). The Sales cost center sends its costs to the billing process: these costs are posted as a part of the COGS.
My questions for the financial consultants are:
1) Do you recognize the process I have described?
2) Do companies still use these processes nowadays? If not, how can they measure the efficiency of the departments (cost centers)?
3) Is it possible for a company to connect an incoming cost invoice to all concerned cost centers when posting the invoice to the G/L?
I understand that it is a possibility (technically in NAV), but does the employee who posts the invoice really know to which cost centers he has to post which amounts?
4) Which definition would you connect to the term Cost Driver?
5) Are there any ideas you see in daily practice, which could help me with this subject?
A lot of questions, but I hope to get some reaction from you all.
Thanks a lot!
Hans
0
Comments
First of all, yes "A lot of questions, but I hope to get some reaction from you all"
I will try to provide you with some inputs from what I understood.
1) Do you recognize the process I have described? - Yes
2) Do companies still use these processes nowadays? If not, how can they measure the efficiency of the departments (cost centers)?
- Companies do use this process. This is termed as "Allocation" in Navision world.
3) Is it possible for a company to connect an incoming cost invoice to all concerned cost centers when posting the invoice to the G/L?
- No, it is not possible to allocate / distribute the incoming cost while creating a Purchase Invoice (as far as my knowledge goes).
I understand that it is a possibility (technically in NAV), but does the employee who posts the invoice really know to which cost centers he has to post which amounts?
- I agree to this. While posting a transaction, the user (employee) in most cases, will not know how to allocate / distribute the cost between the different dimensions. In Navision, this distribution is done periodically (mostly, in the end of a financial year), through "Recurring Journals", in which you find an option "Allocations". You may allocate / distribute the amounts to different dimensions on the basis of Allocation on Quantity, Allocation on %, and Fixed Amount (see attached)
4) Which definition would you connect to the term Cost Driver?
- I am not sure what this is. May be you can help me understanding the terms used in your country.
I donno whether this helps..
Chn