Cost Centers

Cost centers enable detailed tracking of expenses and revenues by department, location, project, or any other business dimension. This guide covers comprehensive cost center management in Angage ERP.

Understanding Cost Centers

Purpose of Cost Centers

Cost centers serve to:

• Track departmental performance
• Allocate shared costs
• Analyze profitability
• Control budgets
• Support decision-making

Cost Center Types

Organizational Units

• Departments (Sales, HR, IT)
• Divisions
• Locations/Branches
• Teams

Projects

• Customer projects
• Internal initiatives
• Capital projects
• R&D efforts

Activities

• Product lines
• Service offerings
• Marketing campaigns
• Events

Setting Up Cost Centers

Creating Cost Center Structure

1. Navigate to Finance → Cost Centers
2. Click New Cost Center
3. Enter details:
   • Code: CC-SALES-001
   • Name: Sales Department - North
   • Type: Department
   • Parent: Sales Division
   • Manager: John Smith

Hierarchical Structure

Design logical hierarchy:

Company
├── Operations
│   ├── Manufacturing
│   │   ├── Plant A
│   │   └── Plant B
│   └── Logistics
│       ├── Warehouse
│       └── Transportation
├── Sales & Marketing
│   ├── Sales
│   │   ├── North Region
│   │   └── South Region
│   └── Marketing
└── Administration
    ├── Finance
    ├── HR
    └── IT

How-To Guides

How to Allocate Costs to Centers

Direct Assignment

During transaction entry:

1. Enter expense details
2. Select cost center
3. System tracks spending
4. Example:

   Travel Expense: $500
   Cost Center: Sales - North

Allocation Rules

For shared costs:

1. Define allocation basis:

   • Headcount
   • Square footage
   • Revenue percentage
   • Usage metrics
   • Custom formulas

2. Create allocation:

   Office Rent: $10,000
   Allocation:
   - Sales (40%): $4,000
   - Admin (30%): $3,000
   - Operations (30%): $3,000

How to Set Up Cost Center Budgets

Annual Budget Creation

1. Go to Budgets → Cost Center Budgets
2. Select fiscal year
3. For each cost center:
   • Enter revenue targets
   • Plan expenses by account
   • Set quarterly/monthly phasing
   • Define KPIs

Budget Entry Methods

• Manual Entry: Line by line
• Import: From Excel
• Copy Forward: From prior year
• Top-Down: Allocate total
• Bottom-Up: Roll up details

How to Track Performance

Cost Center Reports

Access standard reports:

1. P&L by Cost Center

   • Revenue
   • Direct costs
   • Allocated costs
   • Contribution margin

2. Budget vs Actual

   • Variance analysis
   • YTD performance
   • Forecast accuracy
   • Trend analysis

3. Cost Center Comparison

   • Peer benchmarking
   • Period comparisons
   • Efficiency metrics
   • Ranking reports

How to Implement Activity-Based Costing

Define Activities

1. Identify key activities:

   • Order processing
   • Customer service
   • Quality inspection
   • Inventory handling

2. Create activity centers:

   AC-ORD-001: Order Processing
   AC-QC-001: Quality Control
   AC-CS-001: Customer Service

Assign Costs

1. Track activity costs:

   • Labor hours
   • Materials
   • Equipment use
   • Overhead

2. Calculate rates:

   Order Processing: $25/order
   Quality Inspection: $50/inspection

Allocate to Products/Services

Apply activity costs:

Product A:
- 100 orders × $25 = $2,500
- 50 inspections × $50 = $2,500
- Total activity cost: $5,000

How to Manage Cross-Charges

Internal Service Charges

When departments provide services:

1. IT Services

   IT Help Desk: $100/hour
   Charged to: Sales Dept
   Hours: 10
   Total charge: $1,000

2. Shared Services

   HR Processing: $50/employee/month
   Finance Processing: $100/invoice
   Facilities: $10/sq ft/month

Inter-Company Charges

For multi-entity organizations:

1. Define service agreements
2. Set transfer prices
3. Create charges:
   • Management fees
   • Shared services
   • License fees
   • Facility usage

How to Perform Profitability Analysis

Department Profitability

Calculate contribution:

Sales Department:
Revenue: $1,000,000
Direct Costs: $600,000
Allocated Costs: $200,000
Contribution: $200,000 (20%)

Product Line Analysis

Using cost centers:

1. Assign revenue by product
2. Track direct costs
3. Allocate overhead
4. Calculate margins
5. Make decisions

Customer Profitability

Combine dimensions:

• Customer revenue
• Sales costs
• Service costs
• Support costs
• True profitability

Advanced Features

Multi-Dimensional Analysis

Combining Dimensions

Track by multiple attributes:

• Cost Center + Project
• Department + Location
• Product + Region
• Customer + Activity

Matrix Reporting

Create complex views:

        | Product A | Product B | Total
--------|-----------|-----------|-------
North   | $100,000  | $150,000  | $250,000
South   | $80,000   | $120,000  | $200,000
Total   | $180,000  | $270,000  | $450,000

Dynamic Allocations

Variable Allocations

Based on actual metrics:

• IT costs by tickets
• HR costs by headcount
• Facilities by occupancy
• Utilities by consumption

Step-Down Allocations

Service department costs:

1. IT serves all
2. HR serves all except IT
3. Facilities serves production
4. Cascade allocations

Planning & Forecasting

Rolling Forecasts

Update projections:

1. Actual + Forecast
2. Reforecast quarterly
3. Adjust allocations
4. Update budgets

What-If Analysis

Model scenarios:

• Department expansion
• Cost reduction
• Outsourcing options
• Restructuring impact

Cost Center Controls

Authorization Matrix

Define who can:

• Create cost centers
• Post transactions
• Approve expenses
• View reports
• Modify budgets

Validation Rules

System enforces:

• Active cost centers only
• Budget availability
• Approval limits
• Period restrictions
• Posting combinations

Audit Trail

Track all changes:

• Cost center creation
• Hierarchy changes
• Budget modifications
• Transaction postings
• Allocation runs

Best Practices

Structure Design

• Keep it simple
• Align with organization
• Plan for growth
• Consistent coding
• Clear ownership

Implementation

• Phase rollout
• Train users
• Document processes
• Regular reviews
• Continuous improvement

Analysis & Reporting

• Standard reports
• Self-service tools
• Regular reviews
• Action plans
• Performance tracking

Configuration

Cost Center Settings

Navigate to Settings → Finance → Cost Centers:

• Code Format: CC-XXX-000
• Hierarchy Levels: 4
• Budget Control: Warning/Hard stop
• Allocation Frequency: Monthly
• Default Dimensions: Required

Integration Setup

• Planning systems
• BI tools
• Workflow engines
• Reporting platforms
• External systems

Performance Optimization

Report Performance

• Index key fields
• Materialized views
• Aggregate tables
• Caching strategies
• Query optimization

Data Management

• Archive old data
• Summarize history
• Purge details
• Compress storage
• Regular maintenance

Troubleshooting

Common Issues

Cannot post to cost center

• Check active status
• Verify permissions
• Review period
• Check combinations

Allocation errors

• Verify rules
• Check percentages total 100%
• Review basis data
• Validate targets

Report discrepancies

• Check posting dates
• Verify allocations run
• Review hierarchies
• Validate formulas

Next Steps

Learn about Financial Reporting to generate statements and analysis.