Allocating Costs to Multiple Projects: An Important Reminder - 02/26/13
It is important to remember that when allocating costs to multiple projects there must be documented proportional benefit to each of the projects. A cost which benefits two or more projects in proportions that can be determined without undue effort should be allocated to the projects based on the proportional benefit.
Undue Effort means:
- Quick – does not take much time
- Easy – most people can understand the allocation method
- Inexpensive – benefit to project is clear and obvious, thus making identification method relatively cheap
The allocation must take into consideration the benefit of the cost within the time remaining on the project.
Allocations that use up exactly the remaining balance on an expiring project or based on unusual percentages such 63.952% and 36.048% that can’t be justified using the above rational are highly questionable and a red flag to auditors.