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Profit Centers & Customer Project

Former Member
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Hi Experts

I have a question in regards to profit center. I have a customer who has multiple org unit each been a profit center & cost center. Within each org unit there are a number of employee. Employees are attached to labor resource rates

If you create a customer project which requires the services of multiple employee across the organisation will the revenue and cost generated by the employee   (though time confirmation against a project task ) be attributed to the employees org unit?

Org unit 1 = Person A Senior Consultant cost rate 100 Hr, Revenue Rate 200 Hr

Org unit 2 = Person B Journo Consultant cost rate 80 Hr, Revenue Rate 150 Hr

Thank you for your help in advance

Accepted Solutions (1)

Accepted Solutions (1)

Former Member
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Antonio,

The Revenue piece is completely unrelated to the Employee's Org. Unit. It is actually determined based on the Sales Order that serves as a basis for Invoicing.

As for Costs, there are two components:

1) The debit portion will be sent to the Cost Center that is Responsible for the Project.

2) The credit potion is used to offset the Employee's Cost Center.

The logic behind this is that when you post Payroll expenses, you'd post them to the Employee's Cost Center. The intention is that by an Employee posting time to a Customer Project, it will automatically post the debit of the expense to the Responsible Cost Center (to track which cost center truly incurs the costs) and also offsets the Payroll expenses via the credit to "Service Expense - Internal" account. So by combining the Payroll Account and Service Expense - Internal offset, it automatically gives you what portion of the Employee's cost truly belongs to their home Cost Center (and what portion was incurred on behalf of other Cost Centers)

Note that for Customer Projects, this is dependent on Revenue Recognition occurring. For Internal (Cost Collector Projects), these postings happen immediately.

Former Member
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Thank you Dan

So just to confirm the revenue earned by the employee with be determined by the Sale Order  ( Sales Unit Text box)

The cost of the employee will be determined by the Responsible Unit on the Project?

Thank you once again

Former Member
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Antonio,

The revenue earned by the employee is determined by the Time and Expense Assignment to a particular Sales Order, and the eventual Customer Invoice based on that Sales Order. I'm not sure what you're referring to when you mention the "Sales Unit Text box".

When you say "cost of the employee", there's two parts. The actual value of the time is dependent on the labor resource determined by an employee's job and cost center.

The cost center that the time debits is based on the Responsible Unit of the Project, yes. The employee's cost center is credited for the time. So as to the question "which cost center does the employee's time hit", the answer is both, but for different purposes as described in my original response.

Former Member
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Hi Dan,

You mentioned posting employee's 'payroll expenses' to the respective cost center. I noticed the timesheet allocation for 'Internal Services' shoes up on the project report, but not on the financials. For the labour costs to show up in financials, we would have to process a payroll journal (from an external payroll provider). Do you recommend we break down the journal to reflect charges to various cost centres and projects? What level of detail would the payroll journal require? I was hoping the timesheet entries posted to projects would show up on Financial Statements as COGS for customer projects and we would do an over/under recovery against a bulk payroll expense journal. Thanks.

Former Member
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Raman,

You should certainly see the G/L Account on the financial statements. If you don't see the amount, it may be because your offset account and the expense account are within the same group on your financial statement structure and are netting themselves out. Alternately, for customer projects, these amounts will not appear in the expense accounts until you've actually performed Revenue Recognition (until that point, they'll be in Deferred COGS)

As far as journal entries, i would break it down by cost center (breakdown by project is unnecessary - the result of the time entry financial posting process explained in this thread is the reason that this is unnecessary). You should see Customer Project-related expenses hitting an expense account. Double-check that you've run Revenue Recognition and also see where the accounts are placed within your financial reporting structure.

Former Member
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Hi Dan,

Thanks for the response. The following is the what I can see in the system - based on the default settings as I havent made any changes:

Customer Project:

1.Timesheet hours get valuated and costs show up under 'Internal Services' and 'Deferred COGS'.

2. After Revenue Recognition, the costs get moved out of 'Deferred COGS' and and reversed against the original 'Internal Services'.

The above results in an equal debit and credit to 'Internal Services' so the Financial Statements have a net zero balance for this.

I was advised the following:

1. The above treatment is correct because timesheet allocations are not 'actual' costs and are only there to show up on Project Reports to show standard costs.

2. The actual 'labour costs' would only show up following a payroll journal.

I am not convinced with the advice provided as I would like to see the standard costs on the Income Statement - which I would then net against the payroll journal and account for the difference in a 'recovery' account.

I think your suggestion about the 'offset' and 'expense' account netting themselves may explain the situation, but I dont know how to fix this.

Former Member
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Raman,

You'll need to set up a different G/L Expense Account (Type COSEXP) - it used to be standard that the system would have one called "Labor Costs Absorbed" used for the purposes described above.

You'll then specify this as the "Credit For Internal Services" within the Business Configuration activity where you maintain Account Determination rules. It's in the "Account Determination" -> "Costs" section.

Former Member
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Thanks Dan,

The image you sent has the same 518100 account for both Credit and Debit. If I understood you correctly, the highlighted item should NOT be 518100 but another G/L Expense Account? So we end up with XXXXXX for Credits and 518100 for Debits?

Former Member
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Raman,

Yes, that's correct.

If they're the same, that's why you'd see them go in and out of the same G/L account.

Once you change it, you'll notice that the postings should then hit different G/L accounts.

Former Member
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Thanks Dan,

This is what I see as the available options. I picked 'Distribution'.

Former Member
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Raman,

The actual account to use is entirely up to you. I do believe that Distribution is typically intended for a different purpose, though, so you may want to re-visit which G/L Account you ultimately use.

If you want to use a different G/L Account, you'll need to create one. To do so, review the system documentation related to Charts of Accounts.

Former Member
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Hi Dan,

I cannot thank you enough. Your inputs have been extremely helpful.

Thanks again.

Raman

Former Member
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Hi Dan

Thank you for your feed back, very helpful.

I have preformed a few tests, The sale order does indeed defines where the revenue goes too. Is there away whereby the revenue generated by a  consultant can be attributed to the consultant organization unit rather than what has been defined on the sale order.

Thank you

Antonio

Former Member
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Antonio,

I don't believe so, as the revenue will be attributed to the associated Profit Center for the Sales Organization.

One way to account for this would be to set up one Sales Order per Sales Organization and then associated the consultant billing with the Sales Order for the consultant's Profit Center.

Alternately, a more informal way of handling this would be to use a single Sales Order, but add an Extension Field to the Sales Order Line Item where the organizational unit could be set. You'd then set up the Time and Expense Assignment Rules to associated each consultant with the appropriate Sales Order Line Item (the combination of their billing rate and the organizational unit extension field). You add the extension field to the Sales Order Line Item data source, then you should be able to pull it into a report that contains an association to that data source.

Answers (2)

Answers (2)

Former Member
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Dears,

i checked the different message you sent on this part but i cannot see any reply on the question related to distribution of the revenue to multi profit center into one sale order.

As expressed by Antonio, if the company have multi org unit which are each one profit center and having different consultants form different org unit working on the same customer projet.

The expectation is to have after the REVREC the correct revenue assigned to correct profit center.

If my feeling is correct, it doesnt work as the REVREC is not working if we are running it on a sale order with multi line on each profit center.

Is somebody have any experience on this ?

Thanks a lot

Best regards

Former Member
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Hi Antonio,

My understanding is that the Revenue and Cost generated by the employee will be assigned to the Cost Centre that the Project was created for (not the employee cost centre).

Hope this helps,

Kevin.