Cost Allocation Model

The model is driven by departmental headcount, salaries, and annual inputs for travel and supplies, which populate direct costs for Sales, Engineering, Marketing, Operations, and Support. Direct salaries are calculated as headcount times average salary, with benefits applied as a percentage of salary.

• Twelve shared cost pools cover facilities, IT, HR, finance, executive, and depreciation, each with current and prior spend. Allocation bases are determined by department weights for headcount, square feet, revenue, equal split, and IT tickets, with each department's share calculated as its driver divided by the total across all five departments.
• All figures are illustrative inputs for a single fiscal year, not imported accounting data.

The allocation engine processes the 12 cost pools in a fixed order: facilities, IT, HR, finance, executive, and depreciation. Each pool's method code selects the allocation base: headcount, square feet, revenue, equal split, or IT tickets.

• A stage begins with its own flexed cost plus amounts allocated from earlier stages. Part of that total is passed to later support pools, and the remainder is allocated to operating departments using the chosen driver.
• The split between operating and support shares uses a proxy: total flexed pools divided by 12 relative to remaining support-pool costs, with the support share apportioned by those pools' flexed costs. This step-down convention does not model reciprocal service consumption.

Flexed pool cost equals original cost times the fixed percentage plus original cost times the variable percentage times Volume Flex. At the sample 1.0× flex, flexed cost equals current-year input spend.

Flexed pool cost = original cost × the fixed percentage + original cost × the variable percentage × Volume FlexCopy

Outputs include a dashboard, a fully loaded departmental summary, product-level contribution and margins, and comparisons of alternative direct allocation methods. Total allocated overhead sums all 12 stage allocations by department.

• Department contribution equals revenue less direct costs less allocated overhead. Product revenue and total departmental cost are both split using the same product-by-department revenue-share matrix, so product costs follow revenue shares, including direct departmental costs.
• The summary also shows how allocating all overhead directly under each of the five methods would differ; these are simultaneous comparisons, not a scenario selector. Positive reconciliation differences indicate allocated or total costs exceed their comparison base.

Department contribution = revenue − direct costs − allocated overheadCopy

This model is useful for cross-sectional annual analysis of how shared costs flow to departments and products, and for comparing allocation bases. However, the allocation order is fixed by formulas and cannot be reordered without rewriting references.

• Transfers between support pools use relative cost magnitude and a total-pool/12 operating-share proxy, not measured interdepartmental service-consumption percentages. Product costs follow revenue shares rather than tracing individual product materials, labour hours, units, or activities.
• Volume Flex changes variable shared costs only; it does not flex revenue, headcount, direct costs, or product mix. The five method comparisons allocate the whole pool directly to departments without rerunning the full step-down engine.

Zero total drivers can cause division errors, and the fixed dimensions are five departments, 12 pools, and five products.