# Production Cost Allocation

### **Module Guide: Production Cost Allocation**

#### **Module Location**

#### PPIC > Production Cost Allocation

#### **Module Objective**

#### The **Production Cost Allocation** module is a **cost accounting** tool used to charge or allocate **indirect costs** or **overhead costs** to the value of **Work-in-Process (WIP)** inventory. This process is crucial to ensure that the total **Cost of Goods Manufactured (COGM)** of a product includes all relevant costs, not just direct material costs.

### **1. Main View (Allocation List)**

#### The main page of this module displays a list of all production cost allocation documents that have been created.

#### **View Explanation**

- #### **View**: This page is a history of all cost allocation documents. You can see the **Production Cost Allocation Code**, the **Month** and **Year** of the allocation period, as well as the document's **Status** and **Approval**.
- #### **Filters**: You can search for a specific document by **Allocation Code**, a date range, or **Item/Service Category** (generally set to WIP).
- #### **Action Buttons**:
    
    
    - #### **\[New\]** (Not visible, but is the primary button): To create a new cost allocation document.
    - #### **\[Print Document\]**: To print the details of a selected allocation document.

### **2. Steps to Perform a Cost Allocation (Conceptual)**

1. #### **Create a New Document**: From the Main View, click the **\[New\]** button to open the allocation form.
2. #### **Define Period and Allocation Basis**: On the form that appears, define the allocation period (month/year). You will then define the **allocation basis** (e.g., machine hours, labor hours, or material cost) and the total overhead cost to be distributed.
3. #### **Run the Process**: The system will calculate and distribute the total overhead cost to every active WIP item during that period, based on the defined allocation basis.
4. #### **Confirm**: After reviewing the allocation results, you will confirm the document to process its journal.

#### **Workflow & Integrated Business Process**

- #### **Accounting Impact**: After being confirmed and approved, this module will create a journal entry to **increase the WIP inventory value (Debit: Work in Process)** and credit the relevant overhead cost accounts.
- #### **Importance of Allocation**: This process ensures that costs such as factory electricity, machine depreciation, and factory supervisor salaries are fairly charged to the cost of each product manufactured.

### **Tips & Important Notes**

- #### This is one of the key processes in manufacturing cost accounting and is usually performed at **month-end** as part of the book-closing process.
- #### The accuracy of the cost allocation directly impacts the accuracy of inventory valuation and the **Cost of Goods Sold (COGS)** calculation.
- #### This module is a crucial work tool for the **Cost Accountant** and **Controller**.