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Project Harmony

Charity

Cost Allocation Model

KPI's: £1.5 - £2m income PA

Cost allocation model development for a charity with diverse activities.
Project Harmony
Requirement

The charity engages in various activities, including providing training courses, organising concerts, operating a small B&B, and a range of commercial undertakings. The trustees wanted to determine whether each segment of the charity was generating sufficient income to cover its costs.

The finance director commissioned a financial model to produce individual income and expense statements for each activity, illustrating the level of surplus or deficit each generated during the year.

Solution

A 'cost allocation model' was developed to allocate the income and expenses statement of the entire charity on a row-by-row basis to each activity, in order to produce the 'per activity' statements for each.

Every line item of the income statement was allocated to the various activities using a specific methodology. For example, the income statement line “Courses Income” was allocated to activities (each type of course) based on the “Number of Students,” while the cost line item “Course Tutor Fees” was allocated based on the “Number of Tutors required.” In this example courses with a higher student-to-tutor ratio were more likely to generate a surplus.

The resulting output comprised individual income statements per activity, showing the surplus or deficit, and a set of KPIs indicating the surplus or deficit per student or concertgoer (or other 'divisor'). These outputs provided clear insights into the level of direct and overhead costs that each sale (e.g. student or ticket) needed to cover.

The model was built using Modano technology, enabling simple and fast scalability to accommodate varying numbers of income statement lines, activities, and methodologies. It was designed to be easy to use, accepting inputs for income statements and methodology drivers in the charity’s systems native format, making monthly updates fast and efficient.

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