By Red Wing Software
Overhead expenses are those production and non-production costs not readily traceable to specific profit centers or production center details. Although overhead expenses are not directly related to any specific area of your business, they do play a part in the profitability of each area. Account distributions can be used to automate the process of expensing overhead to profit centers or production center details.
Expenses can be distributed by percentage, by acre or by head, and can be distributed at the time the expenses are entered or later when you know exactly how they should be distributed. A distribution can be set up that distributes all overhead expenses, or distributions can be set up for various scenarios. For example, you could distribute utility costs to the various entities of the business. Distributions can also be used to distribute unallocated revenue, such as a government ag payment.
Overhead expenses, such as insurance expenses, will be distributed to all profit centers based on each profit center’s percent of total gross revenue. In our example, dairy is 55% of the operation. Crop is 45% with two crops of corn (60%) and soybeans (40%).
If the insurance bill is $1,000:
- $550 insurance expense would be allocated to dairy.
- $270 insurance expense would be allocated to corn.
- $180 insurance expense would be allocated to soybeans.
Allocate your overhead expenses correctly with account distributions, and you’ll have a better idea about your true product costs.