Question
The “Use Department Overhead Allocation” preference is on. The “Direct Labor (% of total direct labor)” option is selected on the Chart of Account Labor Expense account. This selection was confirmed by looking at the “Dept. Overhead Type” column on the Chart of Account list. We ran the “Income Statement – Overhead Allocation” report and there are no Expenses being shown. Why are the values zero?
Answer
Let’s start by briefly going over how the feature works with your allocation method selection.
Your Overhead Allocation selection (Direct Labor (% of total direct labor)) uses Cost of Goods Sold of labor to proportionately allocate the overhead for that department. For example, your entire company has a total of $500,000 in labor COGS. The Demand Service department has labor COGS of $200,000.
The Demand Service department’s labor costs are 40% of the entire company’s labor cost. Each Expense line item on the “Income Statement – Overhead Allocation” report will include 40% of the total company overhead. If the entire company pays $5000 for Rent, the Demand Service department will show $2000 for Rent.
Check Your Setup
- Check each of your Labor COGS Chart of Accounts. You must have one or more COGS account for labor. Make sure that the “What Best Describes This” selection is set to “Payroll and Labor Only” on each of them.
- In your Chart of Accounts | COGS accounts, check the “Make sure that the “What Best Describes This” selection is correct for all other COGS and Income accounts.
- When your company spends money on labor (as COGS), it needs to know what department the labor belongs to. You must be using the Department selector whenever possible. Timesheets and other forms have Department selectors. For your situation, make sure that your Timesheet entries include department selections. Check every line item.
- “Unallocated” labor COGS is labor that has no department. The more unallocated labor you have, the worse the results.
