Back to P200: Project Accounting Extended Scenarios

Lesson 2: Capturing Project Overhead

Part 2: Budgets

A project can have indirect costs, such as administrative expenses, that are not presented in the project budget. This lesson explains how you can capture these expenses as the project overhead.

Overhead in the Project Budget: General Information

Your company can have such expenses as oﬀice rent or administrative expenses that are posted to the general ledger but not classified against projects and not presented in the project budget. For a more accurate estimation of the project profitability, you can capture such expenses as the project overhead.

Learning Objectives

In this lesson, you will learn how to do the following:

Configure an allocation rule to capture project overhead as a percentage of incurred costs
Capture the overhead on the project

Applicable Scenarios

If you need to more accurately estimate the profitability of a project—for example, for making management decisions or for project management—but the project has some indirect costs that are posted to the general ledger but not classified against the project, you capture these expenses as project overhead.

Creation of an Allocation Rule

To calculate the overhead for projects, you create an allocation rule on the Allocation Rules (PM207500) form. Using this allocation rule, the system creates allocation transactions based on the project transactions posted to a particular account group or specific groups. These allocation transactions post the calculated overhead amount to the specified account group. For this allocation rule, you specify the following settings on the Calculation Rules tab:

Allocation Method: Allocate Transactions With this setting, the system calculates the amount to allocate by using the underlying transactions and their amounts.
Create Allocation Transaction: Selected With this check box selected, the system creates the allocation transactions resulting from the step.
Selected Transactions (Selection Criteria section): Non-Allocated Transactions The step is applied to project transactions that have not been allocated yet.
Account Group From (Selection Criteria section): The account group that starts the range of account groups whose transactions are involved in the allocation step The account groups are ordered alphabetically.
Account Group To (Selection Criteria section): The account group that ends the range of account groups whose transactions are involved in this allocation step. If you want to allocate the transactions posted to a single account group, specify this account group in the Account Group From box, and leave the Account Group To box empty.
Quantity Formula (Calculation Settings section): =0
Billable Qty. Formula (Calculation Settings section): =0 You usually do not need to calculate the overhead quantity.
Amount Formula (Calculation Settings section): The overhead amount that you can calculate as a percentage of the amount of the original transaction. In this case, you use the following formula: =PMTran.Amount*multiplier. You can use a percentage as a multiplier (for example, 0.2 as 20%), a project attribute to define the percentage at the project level, or a rate. For more information on rates, see Billing Rates: General Information.
Description Formula (Calculation Settings section): The description of the created allocation transaction. You specify the following settings for the allocation rule on the Allocation Settings tab:
Post Transaction to GL (Transaction Options section): Cleared With this check box cleared, allocation transactions and reversing allocation transactions will not be posted to the general ledger.
Reverse Allocation (Transaction Reversal section): Never With this setting, the system does not create a reversing transaction for the allocation transactions. The allocation transactions that you create with this allocation rule do not aﬀect the general ledger and are not posted to any account, so you do not need to reverse them.
Account Group (Debit Transaction section): Replace with an account group for capturing the overhead With this setting, the system generates an allocation transaction that debits the specified account group.
Account Group (Credit Transaction section): None You create an additional cost with the allocation transaction and do not need to credit any account group.

Configuration of Projects for Allocation

On the Projects (PM301000) form, for a project to be allocated, you assign the created allocation rule to the project
tasks on the Tasks tab.

Allocation of Projects

You run the allocation process for a project by clicking Run Allocation on the More menu of the Projects
(PM301000) form while reviewing the project. As a result, the system creates allocation transactions based on the
project transactions selected by using the allocation rules specified for project tasks on the Tasks tab. To make
it possible to identify a batch of created allocation transactions, the system assigns the Allocation for <Project ID>
description to such a batch. For the project transactions that have been used as a source of the allocation, the
system selects the Allocated check box on the Project Transaction Details (PM401000) form.

Overhead in the Project Budget: Implementation Activity

The following implementation activity will walk you through the process of configuring an allocation rule for
capturing the overhead for projects.

Story

Suppose that the project manager of the SweetLife Fruits & Jams company wants to estimate the project costs
considering the administrative overhead of the project management to be able to estimate the project profitability

more accurately. The company estimates the project overhead as 20% of labor costs, such as a worker's time spent on performing the project. Acting as SweetLife’s implementation manager, you need to configure an allocation rule to capture the project overhead as 20% of labor costs to reflect the overhead in the project budget. Because the administrative overhead is already presented in the general ledger in the form of transactions that are not classified against projects, you do not need to post to the general ledger allocation transactions that are created.

Configuration Overview

In the U100 dataset, the following tasks have been performed to support this activity:

On the Enable/Disable Features (CS100000) form, the Project Accounting feature has been enabled to support the project accounting functionality.
On the Account Groups (PM201000) form, the OVERHEAD and LABOR account groups have been created.

Process Overview

You will configure an allocation rule for capturing the labor overhead on the Allocation Rules (PM207500) form.

System Preparation

To prepare to perform the instructions of the activity, sign in to a company with the U100 dataset preloaded; you should sign in as system administrator by using the gibbs username and the 123 password.

Step: Configuring an Allocation Rule To configure an allocation rule used for capturing the project overhead as a percentage of labor costs, perform the following instructions:

On the Allocation Rules (PM207500) form, add a new record.
In the Summary area, specify the following settings:

Allocation Rule: LABOVERHEAD
Description: Labor overhead

In the Allocation Steps table, add a row for the allocation rule step with the following settings:

Step ID: 10
Description: Labor

In the right pane, on the Calculation Rules tab, specify the following settings of the allocation step:

Allocation Method: Allocate Transactions
Create Allocation Transaction: Selected
Select Transactions (Selection Criteria section): Non-Allocated Transactions
Account Group From (Selection Criteria section): LABOR
Account Group To (Selection Criteria section): Empty Based on this setting and the previous setting, with this step, the allocation rule processes only transactions of the LABOR account group.
If @Rate Is Not Defined (Calculation Settings section): Set @Rate to 0 You will not use rates to calculate the amount of the allocation transaction.
Quantity Formula (Calculation Settings section): =0
Billable Qty. Formula (Calculation Settings section): =0
Amount Formula (Calculation Settings section): =PMTran.Amount*0.2 You calculate the overhead amount as 20% of the transaction amount.
Description Formula (Calculation Settings section): ='Project overhead for labor'

In the right pane, on the Allocation Settings tab, specify the following settings of the allocation step:

Post Transaction to GL (Transaction Options section): Cleared
Reverse Allocation (Transaction Reversal section): Never The project overhead is not considered in billing and you do not need to create reversing allocation transactions.
Account Group (Debit Transaction section): Replace with OVERHEAD With this setting, the system generates an allocation transaction that debits the specified account group —that is, the OVERHEAD account group.
Account Group (Credit Transaction section): None

Save the created allocation rule.
You have configured the allocation rule that can be used for capturing the project overhead as 20% of labor costs. To allocate the labor expenses of a project by using this rule, you need to assign the rule to the project tasks.

Overhead in the Project Budget: Process Activity

In this activity, you will learn how to estimate the project overhead calculated based on the project costs.

Story

Suppose that the West BBQ Restaurant customer ordered 40 hours of new-employee training on operating juicers from the SweetLife Fruits & Jams company. The parties agreed that the project should be billed in the amount of $2,000 when the services were provided. SweetLife's project manager created a project to account for the provided services. Then suppose that starting from 1/27/2025, a consultant of SweetLife provided three days of training (24 hours) and SweetLife's project accountant entered the corresponding project transaction. Acting as the project accountant, while preparing monthly reports for the project manager, you need to estimate the project costs that have been already incurred considering the administrative overhead, which is 20% of labor costs.

Configuration Overview

In the U100 dataset, the following tasks have been performed to support this activity:

For the purposes of this activity, on the Enable/Disable Features (CS100000) form, the Project Accounting feature has been enabled to support the project accounting functionality.
On the Projects (PM301000) form, the WESTBBQ8 project has been created an the TRAINING task has been created for the project.
On the Account Groups (PM201000) form, the OVERHEAD account group has been created.
On the Allocation Rules (PM207500) form, the OVERHEAD allocation rule has been created. This allocation rule is configured to process project transactions that represent labor expenses and post the overhead that is calculated as 20% of the transaction amount to the OVERHEAD account group. (For an example of allocation rule configuration, see Overhead in the Project Budget: Implementation Activity.)
On the Project Transactions (PM304000) form, the PM00000023 batch of project transactions related to the project has been created and released.

Process Overview

In this activity, you will first specify the allocation rule for the project task on the Projects (PM301000) form. On the same form, you will then perform allocation for the project.

System Preparation

To prepare to perform the instructions of the activity, do the following:

Sign in to the system as project accountant by using the brawner username and the 123 password.
In the info area, in the upper-right corner of the top pane of the Acumatica ERP screen, make sure that the business date in your system is set to 1/30/2025. If a diﬀerent date is displayed, click the Business Date menu button and select 1/30/2025 on the calendar. For simplicity, in this activity, you will create and process all documents in the system on this business date.

Step: Capturing Project Overhead To configure the project for allocation and capture the project overhead, do the following:

On the Projects (PM301000) form, open the WESTBBQ8 project.
On the Tasks tab, in the line with the TRAINING task, select the OVERHEAD allocation rule in the Allocation Rule column.
Save your changes to the project. On the Balances tab, notice that there is only one expense line with the LABOR account group, and the actual amount is $960.
On the More menu, under Billing and Allocations, click Run Allocation. The system performs the allocation using the allocation rule you have specified for the project task. When the allocation is completed, on the Balances tab, review the project balance again, as shown in the following screenshot. Notice that one more expense line with the OVERHEAD account group has appeared in the table. The actual amount of the line is $192, which is 20% of $960.
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   Figure: The captured overhead in the project expenses
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In the table, click the line with the OVERHEAD account group, and on the tab toolbar, click View Transactions. On the Project Transaction Details (PM401000) form, which opens, review the created allocation transaction in the amount of $192.00 that corresponds to the account group. The original document type of the transaction is Allocation and the debit account group is OVERHEAD.
You have estimated the project overhead.