Former Member

# Cumulative allocation

Hi.

Can someone give me a simple explanation of a cumulative allocation as it pertains to distributions, assessments and periodic repostings and a practical business example? Also when referring to these cost allocation methods, what exactly is the partner update?

Thanks

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Posted on Aug 21, 2007 at 07:23 PM

Let's take an example. There is a Cafeteria Department that serves for vistors of

Cost Center A and Cost Center B. First two months Cost center A receives 100 and 200 visitors respectively. Third month Cost Center B alone recives 300 visitors. The total cost incurred in these three months is ZWD 30,000. This is incurred periodically as Jan ZWD 3,000 Feb ZWD 7,000 and due to extra-ordinary inflation March ZWD 20,000.

The total number of visitors is 300 for the whole quarter for each cost centers. Still, if we use simple allocation, (i.e non-cumulative) Cafeteria cost of ZWD 30,000 will be borne by Cost center A in the amount of ZWD 10,000 and Cost center B in the amount of ZWD 20,000.

By cumulative method, there is more equity they share equally, The average cost for the whole period is distributed in a fair way. In some countries it is mandatory to have cumulative assessment.

<b>In this process, the determined allocation amounts, too, are cumulated for each receiver and posted in the current period minus the amounts allocated to the respective receiver in the previous periods. Postings in previous periods are thus unchanged. Cumulative processing always cumulates from period 1.</b>

Non Cumulative

Period Cafateria cost ZWD Cost Center A Cost Center B Cost Center A Cost Center B

Jan 3,000 100 3,000

Feb 7,000 200 7,000

March 20,000 300 20,000

Total 30,000 300 300 10,000 20,000

Cumulative

Period, Cafateria cost ZWD, Cost Center A, Cost Center B, Cost Center A, Cost Center B,

Jan 3,000 100 3,000

Feb 7,000 200 7,000

March 20,000 300 5,000 15,000

Total 30,000 300 300 15,000 15,000

Extension of cumulative.

Period, Cafateria cost ZWD, Cost Center A, Cost Center B, Cost Center A, Cost Center B,

Jan 3,000 100 3,000

Feb 10,000 300 10,000

March 30,000 300 300 15,000 15,000

Total 30,000 300 300 15,000 15,000

Partner update is primarily the sender receiver relationship, In sender cost center line items, the receiver object is updated and vice versa.