This tutorial deals with Fusion Payroll, and how it functions. In this part, we will discuss about the topic of Costing in Payroll.

Costing

Costing is a part of the financials, and it is either opted for or not, depending upon the implementation of the project, which can vary from organisation to organisation. Usually, when the financial aspects are included in the implementation, it makes sense to opt for the costing feature as well. In case you decide to opt out of the costing feature, then the tasks that are related to the feature will also not be part of the implementation.

Costing is a mechanism by which a company determines how the company activities and the labour are costed to the company at various stages of its operation. It can be very helpful for the management of the organisation to get a wider picture about the costs undergone by the company’s operations. Costing plays a vital role in helping managers to form strategies and budgets to reduce the cost borne by the company and to utilise available resources effectively.

As far as Fusion Payroll is concerned, the accounts that are related to the costing feature are the Payroll Account as well as the General Ledger Account.

Apart from these, there are other accounts which are present to provide the costs pertaining to certain areas, such as:

• Cost Account - the main account where each cost entry is recorded.

• Offset Account - the account where the excess or unused amounts are recorded. Usually interest from this amount is used to pay off the principal of any loans taken.

• Natural Account - the actual account by which the company determines how the expenses and costing takes place.

• Suspense Account - the account which is not viewable by external parties for audits or other purposes. It is an internally used account which is used when a transaction takes place that the accountant does not know in which account to place.

• Priority Accounts - special accounts with certain privileges depending on when and where such an account is created.

To create accounts, there are flexfields which have to be set up, called the Account Key Flexfields, such as:

• For the General Ledger - Accounting Flexfield

• For Global Payroll - Cost Allocation Flexfield

When setting up the Accounting Flexfield, it is advisable to have a similar structure as that of the Cost Allocation Flexfield.

In order to have the complete feature of Costing, it is better to have a prerequisite setup from Financials, before being set up in Payroll. The results are then to be transferred from Payroll onto Financials so that entries are made in the General Ledger.

Fig. 1 - Integration of costing with applications in Global Payroll

The above diagram shows the integration of costing with Financials. The chart of accounts, ledgers, accounting periods, and calendars for legal entities are part of Financials; while the reconciliation of payments with bank statements is a part of the Cash Management. Subledger Accounting is involved with the creation of journal entries and posting them to the General Ledger.

Fig. 2 - An overall view of the components created for Global payroll Costing

The above chart presents an overall view of the components that are created for a full cycle of costing to be implemented in Global Payroll.

Cost Allocation Flexfield

From the Global Payroll perspective, the Cost Allocation Flexfield has to be defined in order to use the costing feature. For this, the requirements are listed below:

• Value sets for the segments (the cost accounts used for costing)

• Structure of the Cost Allocation Key Flexfield (mapped to the General Ledger)

• Cost hierarchy levels required for each cost account segment (visibility of the segments at different levels)

• Segments required for the offset account

• Number of structure instances of the Cost Allocation Key Flexfield (at the Legislative Data Group level; once set, it cannot be edited)

Cost Hierarchy

Cost Hierarchy is the hierarchy which the Calculate Payroll process traverses to build the account number for costing. It starts with the lowest level (Element Entry) of the cost hierarchy and ends with the highest level (Payroll). The process checks each level sequentially until it finds a value for the costing result.

In case the Calculate Payroll process cannot find any account number, it places the costing result in a Suspense Account.

Fig. 3 - Cost hierarchy used to build each account segment

The above flowchart depicts how the Calculate Payroll traverses through the cost hierarchy, from the bottom to the top.

(continued in Part 2)

Krishnaa Lakshmanan

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