An allocation model is a method used to distribute shared costs, like shipping or overhead, among various items, departments, or projects. It helps ensure that each product or service reflects its true cost of production based on specific criteria.
Freight shipments can be allocated to a PO either by the number of items or by the value of those items.
You can allocate additional expenses using the following methods: Quantity, Value, Weight, or Volume.
For example, let’s consider PO #1234 with the following line items:
100 units of SKU 123 at $10 each
50 units of SKU 456 at $20 each
If you allocate the $1000 shipping cost by the number of items:
SKU | Quantity | Price per Unit | Shipping per Unit | Landed Costs |
SKU 123 | 100 | $10 | $6.66 | $16.66 |
SKU 456 | 50 | $20 | $6.66 | $26.66 |
If you allocate the $1000 shipping cost by the value of items:
SKU | Quantity | Price per Unit | Shipping per Unit | Landed Costs |
SKU 123 | 100 | $10 | $5 | $15 |
SKU 456 | 50 | $20 | $10 | $30 |
📦 Scenario Setup (Additional Info)
To allocate by Weight or Volume, we need assumed values:
SKU | Quantity | Price/Unit | Weight/Unit (lbs) | Volume/Unit (cu ft) |
SKU 123 | 100 | $10 | 2 | 0.5 |
SKU 456 | 50 | $20 | 5 | 1.5 |
If you allocate the $1000 shipping cost by the weight of items:
SKU | Quantity | Price/Unit | Total Weight | Shipping/Unit | Landed Cost/Unit |
SKU 123 | 100 | $10 | 200 lbs | $4.44 | $14.44 |
SKU 456 | 50 | $20 | 250 lbs | $11.11 | $31.11 |
If you allocate the $1000 shipping cost by the volume of items:
SKU | Quantity | Price/Unit | Total Volume | Shipping/Unit | Landed Cost/Unit |
SKU 123 | 100 | $10 | 50 cu ft | $4.00 | $14.00 |
SKU 456 | 50 | $20 | 75 cu ft | $12.00 | $32.00 |
The weight or volume methods allocates the additional expense based on the dimensions of the items on the ordering document. To use this allocation model:
Ensure that the relevant dimension fields (weight or volume and their respective units of measurement) fields are filled in for all relevant catalog items.
Settle will calculate the total weight or volume of the order by multiplying the weight of each item by its quantity.
The expense is then allocated to each item/
Please note: If any of the catalog items on the order are missing weight or volume information, you will receive an error message indicating which items require those values.
Neither allocation model is inherently superior to the other. The best allocation method for your business depends on your specific needs and considerations.