How to Manage a Cost Distribution Policy to a Cost Control Unit using Dynamics 365 Finance?

Marketing Team
Published on February 2, 2022

Microsoft has introduced a new Cost Accounting Module for Finance and Operations. To improve cost efficiency in your business you need to control your finance and act strategically by recording, reviewing, understanding, and summarising the flow of cost spent on your business operations, services, or goods. As a result, the method you handle cost control becomes a cornerstone of your company's basis. The goal of cost control is to identify and reduce business expenses so that profit margins can be increased. However, to maintain continuity and market presence, you must develop a solid cost-proportioning strategy based on your business activities. Furthermore, having correct production cost information allows you to have a firm grasp on the cost elements while avoiding avoidable costs and, as a result, lowering product costs as much as feasible.

Accounting distributions are used to assign monetary amounts to specific ledger accounts for a source document. Accounting distributions are a program-wide feature that each source document, such as a purchase order, vendor invoice, expense report, or free text invoice, can use and enhance. For each source document line and monetary amount, a default accounting distribution is generated by default and is conditionally enabled for adjustment. There are other accounting distribution factors; as a result, cost allocation and distribution both have a role in cost. You can specify cost distribution guidelines for your collective cost center once it has been monetarily allocated. The cost accountant will make certain that the costs are distributed correctly following the strategy. The purpose of today's post is to introduce our readers to the concept of cost distribution rules in Dynamics and how they work. However, before we get into the process of defining rules, let's go over a few cost accounting tips that will help you better understand how cost distribution rules function in Dynamics 365.

What is Cost Control?

Cost Control involves targeted and strategic expenditure to increase profit. Beginning with budgeting, owners compare their company's actual financial health to their projected budget. If actual costs exceed predictions, management must practice cost control to save expenditures. Companies can, for example, bargain with suppliers to reduce the cost of raw materials and delivery.

To manage the cost, the company needs to have a clear picture of what kind of expenditure is suitable. Though Cost control in a cloud-based environment comes down to permission to spend money by consuming resources. Cloud handles holding cost in two ways, mainly by defining control policies to the native system and pointing out which roles can give resources under particular conditions. Overall, the goal of cost control is to give your company a solid platform for increasing visibility and controlling spending.

What is the role of Dynamics 365 in Cost Controlling?

It's no secret that the process of cost comparison and management goes hand in hand with a lot of data and analysis. Because of this, Dynamics 365 Finance has discovered a use for automation in these areas:

  • Difficult computations and other quantitative tasks become virtually quick and immune to human error with Dynamics 365.
  • When data is shown through dashboards and easy-to-use user interfaces, the analysis becomes much more manageable.
  • This technology enables automated data harmonization, which is advantageous for global projects that need the use of multiple currencies.
  • Data pooling is made easier by third-party connectors to other management systems.

Accounting Cost Cycle

Steps to Control Cost

Keeping track of business expenses isn't as simple as setting them and forgetting about them. It's more analogous to making controversial changes to cyclical processes. So, to give our readers a better understanding of how cost control works on a more fundamental level. Cost control is based on the following process steps:

  • Organizing Resources

The first stage in cost management is to implement project controls; forecasting future project expenses, whether for equipment, materials, staff or even time spent, is critical. The resource planning procedure is conducted before the real task begins. Businesses commonly utilize the work-breakdown structure to analyze subtasks in the schedule and determine what skills or equipment are necessary for each. Financial reporting data from previous projects, as well as comments from team members, are important considerations for this project. Here are some helpful hints to remember as you go through the process:

  1. Consider historical data—past timeframes and effort—before picking sub-tasks and related resources.
  2. Involve SMEs and team members in the process - a collaborative approach is suitable for projects that lack historical data.
  3. Examine the impact of time on resource requirements. A resource, for example, maybe unavailable for several months, forcing the project's schedule to be pushed back. This could have an impact on budgets.
  4. Although this phase happens during the planning stage, project managers must take into account the realities on the ground.
  • Cost Estimation

After that, calculate the overall cost of the project's resources. Estimating costs is a complex undertaking that is influenced by your current budget and the amount of information available. We'll go through cost estimation in greater depth later.

  • Budget Creation

After the job has started, the following step is to give each action a budget. The practice of matching anticipated expenses with the project schedule is known as cost budgeting. Each step in the process is given its cost allocation.

  • Cost Analysis

Finally, project management must consider how to handle budget changes. Cost control keeps track of the difference between the actual cost computation and the predefined baseline cost and takes action as necessary. This phase also involves an examination of the real results of the acts.

What role does Cost Distribution play?

The cost of distributing a company's services and commodities to the end consumer is an expense. In reality, it is a broad financial accounting word that encompasses a wide range of topics. Expenses for delivering items to resellers and end-users, warehouse costs, transportation taxes and tolls, and vehicle maintenance are just a few examples. When the commodities are perishable, the volume of goods is large, or the end-users are in remote locations, distribution costs can account for a significant portion of a company's total costs. It's important to keep in mind that the factors of cost distribution do not include selling and marketing costs. Some previous cost distribution policies, on the other hand, included shipping and logistic expenses. Payrolls for marketing employees, sales commissions, and advertising costs were included in the selling and marketing expenses.

What Cost Distribution includes?

It's a broad term that refers to a wide range of expenses. The distribution costs include all costs related to distributing items to end-users or resellers. All shipping costs are included in distribution costs at every level (from the manufacturing facility to the reseller or end-user). For example, a manufacturer may have a manufacturing plant in one region and a shipping agent pick-up site in another. Distribution costs will include the cost of moving things from the manufacturing facility to the pick-up point.

Handling inventory costs at each shipment stage is also included in the distribution costs. Handling expenses at the manufacturing plant, the pick-up location, the warehouse, and the point of sale will all be included. Distribution expenses could also include packaging costs and administrative distribution charges. In addition, the pay of the distribution manager and the distribution manager's office expenses will be included in the administrative distribution cost. Similarly, freight costs are an important component of distribution costs. For some businesses, it could be trucking fees or something similar.

Overall, we may conclude that the distribution cost comprises shipping costs, packing costs, freight expenditures, storage costs, handling costs, and finally, wage distribution costs. However, distribution strategies range from one company to the next, depending on the company's specific cost distribution requirements between divisions.

How can you minimize Distribution Costs?

The goal of every business should be to reduce distribution expenses as much as feasible. It will allow it to earn as much money as feasible. A company's distribution costs would also be reduced to survive the pricing battle. The following approaches can be used to reduce a company's distribution costs:

  • By eliminating small shipments, a company can save a lot of money. For example, instead of many tiny shipments, a company can deliver one enormous package.
  • Increased distribution expenses are frequently driven by an increase in the number of sales returns. As a result, to control and reduce costs, a company should attempt to reduce sales returns.
  • A corporation shouldn't rely just on one logistics provider. Instead, it should constantly negotiate terms with the logistics provider to get the best price.
  • Technology, equipment, and task automation could all help a company reduce its distribution costs.
  • It will also be good to conduct demand comparison research and determine how urgently the consumer requires assistance.
  • Firms can also lower the cost of type distribution by eliminating the long-term storage of finished goods. In other words, manufacturing is so well-coordinated that there is very little time between production and dispatch.