Internal cost allocation

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The internal cost allocation ( ILV ) is a form of secondary cost allocation , on the cost of measured quantities based. The services are characterized by their respective type of service (reference value) and are uniform in the sense that the output can be measured using an amount of service. The charged costs result from the product of the service volume and the cost rate. The allocated costs are credited to the paying cost center and debited to the receiving cost center. In order to be able to carry out an ILV, the following parameters must therefore be known:

  • Performing cost center
  • Receiving cost center, receiving orders, payers or other cost-bearing account assignment.
  • Cost rate of the performing cost center for the given type of activity
  • Quantity of the purchased service per cost center

Procedure for internal cost allocation

The fundamental problem is that the same cost center that receives services as secondary overhead costs from another cost center can also provide services itself. Such simultaneous billing of services can only be correctly mapped with sophisticated mathematical procedures. Because of the great effort involved in these methods, there are alternative approximation methods :

  1. The cultivation or block process does not take account of the cost allocations from upstream cost centers and is therefore a very rough process. If possible, it should not be used because the result does not reflect the actual circumstances.
  2. The step ladder procedure (or staircase procedure ) requires that the dependencies in the service relationships can be arranged in such a way that no cycles arise. The independent cost centers, e.g. B. the auxiliary cost centers are assigned to level 0, the cost centers that only depend on services from pre-cost centers of level 0 form level 1, etc. The plan tariffs are determined and the plan and actual activity allocation are then carried out in the order of these allocation levels. As soon as cyclical service relationships exist, this procedure no longer provides an exact solution.
  3. The equation procedure also provides an exact procedure when cyclical power relationships are present. The internal interrelationships are determined mathematically correct with the help of a linear system of equations or an iteration .
  4. The coverage offsetting procedure requires a prior definition of the offsetting rates (= cost rates ). You have to know which charging rates are economically appropriate. It has the advantage that the profitability of the cost centers to be resolved can be seen and possible inefficiencies in the company are identified.

Valuation

The amount of the offset secondary costs for known activity quantities of a certain activity type depends on the cost rate of the submitting cost center. A distinction must be made between whether the plan cost rate or the actual cost rate is used.

Standard cost rate vs. Actual cost rate

As a rule, a cost rate is used for offsetting, which is determined from a budget calculation for the current financial year or from average actual costs and quantities from previous financial years ( normal cost calculation ). This cost rate is then specified as the standard cost rate. When offsetting at the standard cost rate, deviations occur on the cost center ( cost over-coverage , cost under- cover ). These can be analyzed and broken down into a cost rate variance and a quantity variance .

Alternatively or additionally, the actual cost rate can be determined from actual costs and quantities for the current period. This cost rate ensures full billing. However, due to the short-term variability of actual costs and quantities, it is subject to greater fluctuations and thus leads to distortions in subsequent invoices (e.g. contribution margin analysis in the income statement ).

It is therefore only advisable to retroactively offset actual costs . The actual quantities are first offset against the standard cost rate. The actual cost rate for the period is then determined. Then there is another service allocation with the same quantities, but this time valued at the differential cost rate. 

Differenzkostensatz = Ist-Kostensatz – Standard-Kostensatz

During the interpretation and analysis, it must be ensured that the cost flow runs in the opposite direction if the actual cost rate is <standard cost rate .

Other secondary clearing functions

Other secondary clearing methods are

  • Levy
  • Award procedure

application

Examples of service types are (service unit in brackets):

  • Working time [h]
  • Number of software licenses [pcs]
  • Conversation units (telephone) [pcs]
  • Use of space [m²]
  • Head of Department [MA]

An ILV is exact and cost-effective if the cost allocation follows the exact (actual) quantities of the services provided. In addition, the cost rate (hourly rate) used to determine costs must also be appropriate for the service. The cost recipient can influence the cost burden from ILV directly by determining the amount of service received, i.e. H. influences the cost driver. As a rule, however, it has no direct influence on the cost rate, as this is determined by cost factors for which the cost center providing the service is responsible.

At most, a cost rate can be assessed within the industry or within the group using a benchmark comparison. It is important that the composition of the service components that are offset in an ILV is correctly understood by all those involved. In addition to the cost center report, appropriate documentation and communication are also important. If the structure of the charged cost rate and the services it covers are not correctly understood, misunderstandings and shortened criticism can easily arise.

Example: The hardware and operating costs, the license costs for the standard applications, the personnel costs of the user help desk, etc. can be collected on a PC workstation service cost center. The cost rate per PC workstation is then obtained by dividing the costs on this cost center by the planned number of PC workstations. Such a cost rate quickly amounts to several thousand monetary units (MU) per year. In the case of the service-receiving cost center managers who have to bear these costs and find that they can privately buy an entire personal computer well under a thousand GE from the local electronics discounter U. the impression that they are being charged far too high costs. This impression arises when they are not aware that with the PC workstation cost driver they have to bear much more performance costs than the bare hardware costs of the personal computer.

See also