Allocating more effectively

This topic addresses things you need to know to help you make allocations more effectively—meeting your goals for allocation and doing it faster, with less effort.

Normally, most of your allocations will focus on transferring expense from accounts and from cost centers to profit centers. If your chart of accounts and classes lists have many child levels—accounts, sub accounts, sub sub accounts, and so on—adding allocation formulas at each child level could involve a lot of work. But ManagePLUS Gold automatically accumulates unallocated amounts from account and cost center child levels to parent levels, and that lets you allocate entire branches of the account or class tree by creating just a few allocation formulas at the parent levels rather than at every child level.

Let's consider an example. Here's a cost center branch of a classes list. It has a subclass structure which groups equipment items in a way that makes it easy to allocate their costs to the appropriate profit centers. For instance, the subclasses of Equipment:Crop each represent crop-specific equipment items, the expenses of which—depreciation, repairs, insurance, etc.—should be allocated to profit center classes which represent crop production activities.

Equipment
Crop
Field cultivator
Planter
Sprayer
Livestock
Feed wagon
Livestock trailer
Livestock scales

Though it is possible to make allocations from each sub class (Field cultivator, Planter, Sprayer) to Crops:Corn and Crops:Soybeans, ManagePLUS Gold offers an easier alternative: you can simply allocate from Equipment:Crops to the desired profit centers. This is possible because ManagePLUS Gold automatically accumulates unallocated cost center amounts from child levels to parent levels.

This feature creates an opportunity for you to organize your chart of accounts and classes list in ways that make allocation easier. In the example above, having Crop and Livestock class levels is what permits automatic accumulation of crop-specific and livestock-specific expense, and eliminates the need to allocate each child class separately.

Automatic accumulation to parent levels is not done for profit centers.

•	The Indirect (from sublevels) column shows the amounts accumulated from sublevels (and thus available for allocating from the parent level).

Here's an example. In one of the tutorial lessons you fully allocated Utilities:Electricity expense to a couple of profit centers. That allocation is indicated by the red arrow in the OUT (allocated to others) column of the illustration below. But nothing was done with Utilities:Water expense, and its unallocated amount is indicated by the green arrow in the Unallocated column. This unallocated amount also appears in the Indirect (from sublevels) column for the Utilities parent account, as indicated by the blue arrow. In other words, ManagePLUS Gold has accumulated the unallocated amount ($152.92) from the Utilities:Water subaccount to make it available for allocating from Utilities parent account.

Also notice also that the same $152.92 amount appears in the Available to Allocate column for Utilities in bold red text. ManagePLUS Gold does that whenever a parent-level account or class has an unallocated amounts, to remind you that these amounts should normally be allocated elsewhere.

ManagePLUS Gold reminds you when a parent-level cost center isn't fully allocated out, by displaying the Unallocated column's amount in bold red text.

This idea is simpler than it sounds. All it means is that if you've entered an allocation formula at a parent level and also at any of its child levels, the children-level allocation formulas take precedence. In other words, the parent level only gets to allocate what's left over after any allocations done from its child levels.

This also means you can leave allocation formulas in place at a parent level regardless of whether they currently have anything to allocate or not. If child-level allocation formulas are later deleted, the parent-level formulas will still be there and will automatically "kick in" to allocate amounts which the child level no longer allocates (because its formulas have been deleted).

Continuing the example above, what if we entered allocation formulas for Utilities:Water so that it was fully allocated out to profit centers? Here's the result.

The red arrow in the OUT (allocated to others) column shows that $152.92 of Utilities:Water—the full amount available—has been allocated somewhere. The fact that there's no amount shown in the Unallocated column verifies this.

But what about the Utilities parent account? No amounts are shown for it in any column, because both of its child accounts are fully allocated by their own allocation formulas: there's nothing left over to be allocated by the Utilities parent.

How your Classes list is organized can have a significant impact on getting income and expense assigned to the appropriate profit center—the one most responsible for a particular income or expense item.

Parent-level profit centers normally represent broader areas of your business, while their child levels represent more specific areas or "sub departments" of the parent levels. Here, Corn and Soybeans can be considered sub departments of the more general Grains department (the parent), and Grains and Forage are more general sub departments of Crops (the parent). The general idea of full costing is that amounts assigned to a parent-level profit center should always be allocated to its child sublevels so that reports for every segment of the business reflect the full costs associated with its revenue.

•	Having multiple profit center levels can help you assign expenses and income "closer" to its appropriate destination as you enter transactions in QuickBooks.

For example, what if you buy a moisture tester which is used for checking the moisture content of hay? When you enter the expense transaction for the moisture tester in QuickBooks, it should be tagged with the Crops:Forage:Hay class. Later in ManagePLUS Gold then, you would allocate amounts from Crops:Forage:Hay to the Bermuda grass and Red clover profit centers on some reasonable basis.

Another example: soil testing fees. If the tested fields grow grain crops part of the time, and pasture or hay crops at other times, soil testing fees could be tagged with the Crops class at transaction entry, then later allocated to Grains and Forage classes in ManagePLUS Gold.

As you may have guessed by now, allocations often "cascade" down a profit center branch of the class tree. You may have formulas which allocate Crops expense to its Grains and Forage subclasses. And you may have formulas which allocate Forage to its Pasture and Hay subclasses. You'd also likely have formulas which allocate expense from Hay to Bermuda grass and to Red clover. (ManagePLUS Gold keeps the "cascading" relationship of these allocation formulas straight, so that they are calculated in the proper order.)

•	Keeping allocation formulas in place, so parent-level profit centers are always fully allocated to their child sublevels.

Getting a Profit Analysis report for a parent-level profit center like Crops, or Crops:Forage is fully supported by ManagePLUS Gold. But more often the main goal is to examine profitability of the terminal-child-level profit centers (one which have no child levels below them). And you can only get accurate estimates of profits at child levels if all income and expense associated with parent levels is fully allocated to them. So it's a good idea if your parent-level profit centers keep formulas in place to fully allocate any amounts they may receive, to their child profit centers. Parents should usually just allocate to their immediate children, then let those children allocate to their children, and so on.

ManagePLUS Gold reminds you when a parent-level profit center isn't fully allocated to its children, by displaying the profit center's Unallocated column amount in bold red text.