Distribution plans

o Plans of distribution are applied in order to distribute costs from cost centers to cost bearers. When distributing a number of costs from cost centers to cost bearers, the distribution keys aim at finding the most objectively correct connection between the costs of the cost center, and the cost bearer's use of the same. As a rule, this process occurs in such a fashion that a variation in the cost bearer's production causes the same variation in the costs of the cost center. The better the distribution key is at executing this task, the more objective it is. Likewise, the worse the distribution key is to execute the task, the more arbitrary (random) it becomes.

An example of a bad distribution key could be when wood consumption for producing a window is included in the work hours. "Experiences tell us that it takes an hour to produce a window, and that in one hour, 9.3 meters of wood are processed." Such a distribution key would not be able to manage shorter or longer series in production, or different types of windows, with different numbers of panes, etc.

A number of typical distribution keys are presented below. The calculation task defines based on, among other things, precision and decision task requirements. The more precise, the more costs are included in the calculation task:

Activity based:

o Wages or time worked

o Production size, consumption of raw materials etc.

o Turnover

o Number of customer visits and number of offers made.

Process based:

o Number of machines

o Process turnaround time

o Number of processes or number of m2 occupied by the process

o Number of customer visits, number of products or product lines.

One of the main tasks implicit in the calculation task is the distribution of costs, placed in cost centers, to cost bearers.

ABC terms

During the '90s an American calculation model called Activity Based Costing, won increasing recognition.14 This model operates with cost divisions that are somewhat different from those described above. The ABC model is explained fully later in this paper, but its terms are introduced here.

Fundamentally, the same chains of reasoning are applied in the ABC:

o Cost pools are more or less the same as cost centers. In the same way the term cost pools deals with the firm's activities as attributed to a source of resources.

o Cost objects are the ABC term for cost bearers. In this way ABC seeks to establish a sensible connection between cost pools and cost objects (which in ABC can be processes).

ABC sets out to distribute a single cost pool over several cost objects. It is not necessary for each cost pool to have a cost object.

Even though the ABC calculation is reminiscent of the full cost calculation mentioned earlier, there is a difference between the basic philosophies behind full cost and ABC.

Possible cost attribution

The calculation task is often focused on establishing the costs of a given activity. This activity will typically be established by analyzing the costs of producing one unit of a given product. A concrete example referring to the HKP company context mentioned earlier: "producing a Dannebrog -window measuring 82 x 128 cm with thermal panes."

In this case, a downward-moving tendency of possible cost attributing would be typical, where an objective distribution key is necessary between phases.

Cost type:


Examples :

Possible distribution


Direct product unit costs

Costs directly attributed to the producing


Number working hours


Helping materials

Direct wood consumption

None, as the

costs are direct

Direct product costs

Costs directly attributed to the specific


Estimated training

A 22% wage



Holiday allowance


Petty theft/shrinkage


theft totaling 8%

Direct product line costs

Costs that are directly

attributed to the specific product line

Special machinery for

window production



Quality control


based on working/machine


Distribution as

a fixed supplement per window

Direct sectional or departmental


Costs attributed to the

Operation of buildings

Supplement per

section /department


working hour


Supplement per

Other machinery etc.

machine hour


Costs that cannot be


Supplement per

indirect costs

attributed to the items

Sales and marketing




Supplement per

Generating estimates

DKK in turn-


Supplement per

order created

As only the direct variable costs that are tied to the specific product units, can be distributed without complications, principally will all other costs be distributed using a distribution key, see above matrix.

When or if a cost center is to be distributed to cost bearers, this is accomplished with the most suitable distribution key, being as correct or as simple as possible. Thus a distribution key is a statement of the criteria by which the costs are to be distributed. The table below shows how a distribution key could be used to distribute both indirect costs to direct costs, and fixed costs to variable cost. Variations occur depending on the "cost school."

Great skill and experience are required in order to establish good and simple distribution keys. Furthermore, simplicity is crucial, as the necessary calculation information should be obtainable, but also measurable through an appropriate organization of the firm's accounting and financial controlling.

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