Cost Center and Cost Category

 

Cost Center

While Account Ledger Provides information about the nature of transaction, it does not identify the departments or divisions involved with it. Cost centers (and categories) gives additional dimension to the transaction. Cost center is any unit an organization to which costs can be allocated. Cost Center may be various branches, Departments, Project, Product, Persons etc.

You can organize Cost Center info numerous (Primary & secondary) levels, in hierarchical Structure without any limit. For Example, you may analyse the Salary expenses according to branches and departments. Simultaneously you want the salary expenses to be split up into ledger accounts like Basic. DA, TA, etc. So that you know the departments –wise –break-up of these elements. In such situation, only ledger Accounts are insufficient as they will not provide you two-way analysis. Such concept may be extended to any income or expense, spanning Over Number of cost (or profit) Centers. Following example will better clarify the utility of Cost Center.       

1) Head Office           2) Branch Office               3) Factory 1              4) Factory 2

       Add you are interested to get ledger wise as well office/factory wise breakup Figures. For this Purpose, create Cost Center for each office/factory and while entering Such expense in Vouchers,

o   Ledger Accounts wise figures

o   Cost Center wise Figures

o   Cost center wise breakup of each Ledger

Ledger Account wise breakup of each Cost Center

Normally, Cost Center are used to allocate revenue Accounts (Expense & income), you can even allocate non-revenue Account (for example, Capital project cost, Fixed Assets etc.) to Cost Center.

Activation of cost Center

Gateway of tally > F11: Accounting Features > set following option 

Maintain Cost Centers. ‘NO'

More than One payroll / Cost Category to ‘NO’ Press ctrl + A                                                                                   

Steps for creating new cost centers.

Gateway of tally > Accounting info > Cost Center > Single Cost Center > create

Field	Type
Name	Head Office
Under	Primary
Accept? Yes or No	Yes

Cost center Creation Screen is shown as below

Create the following Cost Centers as above

                        1) Branch Office                                2) factory 1                         3) factory 2        

Alter the following Expenses Ledger Account

Gateway of tally > Accounts info > ledger > alter > select travelling exp.

Name	Traveling Exp.
Under	Expense [ indirect]
Inventory Values Are Affected	No
Cost Center Are Applicable	Yes
Accept? Yes or No	Yes

 

Ledger	Group
Electricity Exp.	Expenses [ indirect]
Telephone Exp.	Expenses [ indirect]
Petrol Exp.	Expenses [ indirect]
Postage & courier	Expenses [ indirect]
Transport Exp.	Expenses [ Direct]
Himali Exp.	Expenses [ Direct]
Purchase A/c	Purchase A/c

Alter the Following Expenses Ledger Account’s as Shown Above

Cost center allocation in Voucher Entry

Gateway of tally > Accounting Voucher > Press   F5: Payment

Exercise: Enter the following Payment Voucher Using Cost Center           

Press Esc & Return to Gateway of tally

Date	Transaction
1/11/2017	Cash Paid to Petrol Expenses Rs. 210/- Cost Center Head Office
1/11/2017	Paid cash To Transport Exp.  Rs. 170/- cost Center Factory 1.
1/11/2017	Paid cheque No 222710 of Rs. 300/- To telephone Exp. Cost center Factory 2.
1/11/2017	Paid Cash to Petrol Exp. Rs. 80/ - Cost Center branch Office.
1/11/2017	Paid cheque No 222811 of Rs. 350/- To Electricity Exp. Cost Center Head Office.
1/11/2017	Paid Cheque No.222912 Of Rs.320/- To telephone Exp. Cost Center Head Office
1/11/2017	Paid Cash to Postage & Courier Rs 240/- Cost Center Head Office.
1/11/2017	Paid cheque No 223013 of Rs. 370/- To Electricity Exp. Cost Center Head Office.
1/11/2017	Paid Cash to Petrol Exp. Rs. 80/- Cost Center Factory 1.
1/11/2017	Paid cheque No 223114 of Rs. 340/- To Electricity Exp. Cost Center Head Office.
1/11/2017	Paid Cheque No.223215 Of Rs.350/- To telephone Exp. Cost Center Factory 2.
1/11/2017	Paid Cash to Petrol Exp. Rs. 85/- Cost Center Head Office.
1/11/2017	Paid cheque No 223316 of Rs. 330/- To Electricity Exp. Cost Center Factory 1.
1/11/2017	Paid Cheque No.223417 Of Rs.375/- To telephone Exp. Cost Center Head Office.
1/11/2017	Paid Cash to Postage & Courier Rs 290/- Cost Center Factory 2.
1/11/2017	Paid cash To Transport Exp.  Rs. 150/- cost Center Head Office.
1/11/2017	Paid Cash to Petrol Exp. Rs. 90/ - Cost Center Factory 2.
1/11/2017	Paid cash To Transport Exp.  Rs. 130/- cost Center Factory 1.
1/11/2017	Paid Cheque No.223518 Of Rs.360/- To telephone Exp. Cost Center Head Office.
1/11/2017	Paid cheque No 223619 of Rs. 415/- To Electricity Exp. Cost Center Branch Office.
1/11/2017	Paid Cash to Postage & Courier Rs 150/- Cost Center Head Office.
1/11/2017	Paid Cheque No.223730 Of Rs.320/- To telephone Exp. Cost Center Factory 2.
1/11/2017	Paid cheque No 223831 of Rs. 370/- To Electricity Exp. Cost Center Factory 1.
1/11/2017	Paid Cash to Petrol Exp. Rs. 80/ - Cost Center Head Office.
1/11/2017	Paid Cash to Postage & Courier Rs 230/- Cost Center Head Office.
1/11/2017	Paid Cheque No.223932 Of Rs.370/- To telephone Exp. Cost Center Head Office.
1/11/2017	Paid cheque No 224033 of Rs. 410/- To Electricity Exp. Cost Center Factory 2.
1/11/2017	Paid Cheque No.224134 Of Rs.340/- To telephone Exp. Cost Center Factory 1.
1/11/2017	Paid Cash to Postage & Courier Rs 240/- Cost Center Head Office.
1/11/2017	Paid Cash to Petrol Exp. Rs. 130/- Cost Center Branch Office.
1/11/2017	Paid cheque No 224235 of Rs. 390/- To Electricity Exp. Cost Center Factory 2.
1/11/2017	Paid cash To Transport Exp.  Rs. 110/- cost Center Factory 1.
1/11/2017	Paid Cheque No.224236 Of Rs.390/- To telephone Exp. Cost Center head Office.
1/11/2017	Paid Cash to Petrol Exp. Rs. 80/- Cost Center Branch Office.
1/11/2017	Paid cheque No 224437 of Rs. 350/- To Electricity Exp. Cost Center head Office.
1/11/2017	Paid Cheque No.224538 Of Rs.420/- To telephone Exp. Cost Center head Office.
1/11/2017	Paid Cash To Postage & Courier Rs 90/- Cost Center Head Office.

 

Create Purchase Voucher using As Voucher Format

Gateway Of tally > Accounting Voucher > Press F9: Purchase > Press Ctrl + V

Transaction: Purchased Goods from Shri Balaji Ltd with New Ref No. SBL -1526

On Showroom & Cost Center Head Office

Date	Description of Goods	HSN/SAC Code	GST Rate	Qty	Rate	Per	Amount
01/11/17	36”LED-LG	85121000	18%	1	3365	Nos	4,324.70

Press enter & Accept the Screen & return to Gateway of tally

Have you entered the correct voucher entry you can check it in trial balance

·         Gateway of tally > Display > trial balance.

The total of debit side and credit side is trial balance should be 1,05,16,703,66/-

To Display the Cost Center Entries

Gateway of tally > Display > statement of Account > Cost Center > Cost Center Break-up > Cost Center Name

Category	Salesmen
Name	Nilmesh
Alias	Enter
Under	Primary
Accept? Yes or no	Yes

Cost Categories

Tally gives Substantial flexibility to allocate ledger Account Figures to Cost Center. However some organization may need to allocate the expenses more than one dimension. Your requirement of allocation of cost center is more demanding, then may use cost categories.

Cost categories allow parallel sets of cost center to allocate.

For example,

 A company may allocate an amount independently to salesman, Products & Agents as follow:

Cost Categories	Salesman	Products	Agents
Cost center	Mr. A	ITAM 1	ABC
	Mr. B	ITEM 2	XYZ

Having done like this, now you will get reports of allocated amount accordingly 

Note: - Normally, most of the organization will be find cost centers alone sufficient for cost allocation and would not require cost categories, before o opting cost category, weigh its merits & complicity as it will increase data entry. If cost center alone serves your purpose, avoid cost category.

Activating Cost category

Gateway of tally > F11: accounting features > set following option to “yes”

Maintain more than one payroll / cost category

   Press Enter & Accept the screen & return to Gateway of tally 

Creating New cost category

Gateway of tally > Account info > cost category > single cost category > create

Press enters & accept the screen & return to Gateway of tally

Gateway of tally > Account info > cost center > create (Single) Cost center > Create

Likewise create a new Cost Center ‘Yash’ & ‘Nikhil’

Enter the following Payment Transaction using Cost Centers & Cost Categories

Date	Transaction
2/11/2017	Paid Rs. For traveling Exp. Rs.80/- Cost Center ‘ Head Office‘ & cost Category Nimlesh
2/11/2017	Paid Cash to petrol Exp. Rs.90 /- Cost Center ‘ Factory 1’ & Cost Category ‘ Nilmesh ‘
2/11/2017	Paid Cash to petrol Exp. Rs.60 /- Cost Center ‘ Factory 2’ & Cost Category ‘ Yash’
2/11/2017	Paid Cash to petrol Exp. Rs.120 /- Cost Center ‘Head Office’ & Cost Category ‘ Nikhil’
2/11/2017	Paid Cash to petrol Exp. Rs.230 /- Cost Center ‘Factory 1’ & Cost Category ‘ Nilmesh’
2/11/2017	Paid Cash to petrol Exp. Rs.500 /- Cost Center ‘Head Office’ & Cost Category ‘ Nikhil’
2/11/2017	Paid Cash to petrol Exp. Rs.400 /- Cost Center ‘Head Office’ & Cost Category ‘ Yash’
2/11/2017	Paid Cash to petrol Exp. Rs.250 /- Cost Center ‘ Factory 2’ & Cost Category ‘Nikhil’
2/11/2017	Paid Cash to petrol Exp. Rs.130 /- Cost Center ‘ Factory 1’ & Cost Category ‘ Nilmesh’
2/11/2017	Paid Cash to petrol Exp. Rs.190 /- Cost Center ‘Head Office’ & Cost Category ‘ Yash’
2/11/2017	Paid Cash to petrol Exp. Rs.750 /- Cost Center ‘ Factory 2’ & Cost Category ‘ Nilmesh’
2/11/2017	Paid Cash to petrol Exp. Rs.120 /- Cost Center ‘Branch Office’ & Cost Category ‘ Nikhil’
2/11/2017	Paid Cash to petrol Exp. Rs.60 /- Cost Center ‘ Factory 2’ & Cost Category ‘ Yash’
2/11/2017	Paid Cash to petrol Exp. Rs.120 /- Cost Center ‘Head Office’ & Cost Category ‘ Nikhil’
2/11/2017	Paid Cash to petrol Exp. Rs.230 /- Cost Center ‘ Factory 1’ & Cost Category ‘ Nilmesh’
2/11/2017	Paid Cash to petrol Exp. Rs.500 /- Cost Center ‘Branch Office’ & Cost Category ‘ Nikhil’

To Check Whether you have entered correctly-

Gateway of tally > Display > trial balance.

Total Balance: Rs. 1,05,16,703.66