Cost Category

Cost Categories are useful for organisations that require allocation of resources to parallel sets of Cost Centres. Such organisations would usually be project oriented.

Most organisations would not need Cost Categories. The proper use of Cost Centres itself would offer the same benefits. Cost Categories could increase data entry work and make it more complicated. Hence, before opting for Cost Categories, evaluate whether you actually need this option. Always attempt to first use Cost Centres.

Use of Cost Categories

By using Cost Categories you may allocate, in parallel, a transaction to more than one set of Cost Centres. The following example illustrates the use of Cost Categories.

The Primary Cost Centres such as Marketing, Finance and Manufacturing can now belong to a category - Departments.

The Salesmen A, B and C can be Cost Centres under a Category - Executives.

Similarly, you can create a new Cost Category 'Projects' under which Cost Centres such as Airport construction, Road construction and Buildings may be created. The classification appears as in the following matrix.

 

Specify a Cost Category to allow allocation of only revenue items or items of both revenue and capital nature. In this example, allow both for Departments and Projects Categories and only revenue for Executives.

Salesman A incurs conveyance expenses of Rs. 1000. If he has incurred it for marketing, allocate this amount to the Cost Centre - Marketing and his own Cost Centre - Salesman A. (Allocate this while entering a payment voucher debiting Conveyance and crediting Cash.) If the salesman now incurs expense for the project Buildings, allocate to the Cost Centres - Salesman A and Buildings.

Allocate an expense to one or more Cost Centres. It is not essential to always allocate expenses to all Cost Centres. If you did not create Cost Categories, you would have been able to allocate the expense to either the Project Buildings cost centre or Salesman A, not to both.

You can obtain details of conveyance expenses incurred by Salesman A on Marketing as well as on the Buildings project when you have Cost Categories.

You cannot, however, extract a single report giving details of marketing expenses incurred by Salesman A on the Project Buildings. These are different Cost Categories and cannot be merged. If such reports are required, you must create ledgers such as Conveyance - Marketing which will help you generate the desired report.

By allocating expenses to parallel Cost Centres under different categories, you are simply assigning the amounts to them; the amount does not increase. In the above example, the conveyance of Rs. 1000 remains an expense of Rs. 1000 only. Tally performs an automatic reconciliation on real-time basis, saving you the effort of reconciling Ledgers and Cost Centres.