ABC G/L Pool Concepts

G/L pools are codes that the system uses to link G/L expenses to ABC activity codes so the system can determine the cost per activity. After defining G/L pools, you assign them to G/L expense accounts and assign them to ABC activities.

ABC G/L pools represent major areas of expense for your company. For example, you can create a Sales pool to group all of the activities associated with entering orders and a Warehouse pool to group all of the activities associated with picking, packing, and shipping orders.

ABC G/L pools link to G/L expense accounts, such as Wages & Salaries – Sales and Office Supplies Expense. You define which G/L pools apply to which expense accounts and what percentage of your employees' time is spent performing the activities the G/L pool represents. The ABC Cost Calculation program then uses the percentage of the actual expense amounts allocated to the G/L pool and the number of times your employees perform an activity to determine the cost of each ABC activity assigned to the pool. For more information, see How Eclipse Calculates ABC Costs.

G/L Pool Setup

Setting up ABC G/L Pools involves:

• Defining ABC G/L pools.

• Assigning ABC G/L pools to G/L accounts.

• Assigning activities to G/L pools.

Example

The following example shows how G/L pools are used in ABC.

Assumptions

Assume that the following are complete lists of G/L expense accounts, ABC G/L pools, and ABC activities that you have defined for your company.

List of G/L Expense Accounts

• Wages & Salaries - Sales

• Wages & Salaries - Warehouse

• Utilities Expense

• Fuel Expense

• Truck Maintenance Expense

• Office Supplies Expense

List of ABC G/L Pools

• Sales Pool

• Warehouse Pool

List of ABC Activity Codes

• Order Entry

• Open Order Line Entry - Stock

• Open Order Line Entry - Nonstock

• Line Item Pick - Stock

• Line Item Pick - Nonstock

• Print Shipping Document

• Special Handling Instructions - Packing

• Special Handling Instructions - Delivery

• Delivery - OT Our Truck

Assigning G/L Pools to General Ledger Accounts

After you have defined your G/L pools, use the G/L Account Maintenance screen to assign your pools to G/L accounts and specify the percentage of the account balance to allocate to each pool.

The first line in this example shows that 30% of the total wages paid to your sales staff are related to the function of entering a sales order. You determine the percentages. While multiple G/L pools may be assigned to a G/L account, the percentages do not have to add up to 100%.

Assigning G/L Pools to Activity Codes

After you have assigned G/L pools to G/L expense accounts, use the ABC Code Maintenance screen to assign activities to your pools. In this example, the first three activities are functions of your sales staff and the remaining activities are functions of your warehouse staff.

ABC Cost Calculation

For the purposes of explaining the ABC Cost Calculation program, the example deals only with the ABC activities that comprise the Warehouse pool.

For a 12-month period, the ABC Cost Calculation program accumulates:

• The number of ABC activities triggered for the Warehouse pool.

• The expense dollars allocated to the Warehouse pool.

The program then divides the total allocated dollars by the total number of activities to arrive at the cost per activity. The system then assigns this cost each ABC activity code associated with the Warehouse pool. For example, if the Wages & Salaries - Warehouse expense account shows a dollar amount of $150,000, and 60% of your employees' time is spent on activities assigned to the Warehouse pool, $90,000 of that $150,000 is allocated to the activities within the warehouse pool. If the system logged 300,000 Warehouse pool activities, each activity costs your company about 30 cents.

See Also:

Activity-Based Costing Overview

Setup Requirements for Activity-Based Costing