Day 26: Cost Centres & Budgets
✅ Today you will learn
- Why cost centres: profit by division, branch or project
- Create cost categories and cost centres
- Allocate income and expenses in vouchers
- Read cost-centre reports
- Create budgets and read variances
🏢 In the real world
Rohit now sells three ways: the retail counter, bulk supply to schools and online orders. Total profit for September is ₹11,600 – but which part of the business is actually earning it? Cost centres answer that, and budgets tell him whether each expense stayed within plan.
Set up cost centres
- 1F11 → Accounting: Maintain cost centres = Yes (and More than one cost category if you need, e.g., Divisions and Projects).
- 2Create → Cost Category: Divisions (allocate revenue items and non-revenue items as needed).
- 3Create → Cost Centre: Retail Counter, School Supply, Online Orders under category Divisions.
- 4In income/expense ledgers set Cost centres are applicable = Yes.
- 5In a voucher, after the amount, TallyPrime asks for the cost-centre allocation – split by amount.
| Particulars | Debit | Credit | |
|---|---|---|---|
| Dr | Salary Retail Counter 26,400 · School Supply 26,400 · Online Orders 13,200 | 66,000 | |
| Cr | SBI Bank | 66,000 | |
| Total | 66,000 | 66,000 |
If the same percentage split repeats every month, create a cost centre class (enabled from F11/F12) with the percentages; TallyPrime then allocates automatically.
Profit by cost centre – September 2026
| Retail Counter | School Supply | Online Orders | Total | |
|---|---|---|---|---|
| Sales | 1,80,000 | 2,60,000 | 90,000 | 5,30,000 |
| Less: Cost of goods sold | 1,35,000 | 2,05,000 | 68,000 | 4,08,000 |
| Gross profit | 45,000 | 55,000 | 22,000 | 1,22,000 |
| Less: Salary | 26,400 | 26,400 | 13,200 | 66,000 |
| Less: Rent | 12,000 | 7,200 | 4,800 | 24,000 |
| Less: Electricity | 3,000 | 1,800 | 1,200 | 6,000 |
| Less: Delivery & Courier | – | 3,600 | 5,400 | 9,000 |
| Less: Online Platform Fees | – | – | 5,400 | 5,400 |
| Contribution / net | 3,600 | 16,000 | -8,000 | 11,600 |
Report path: Display More Reports → Statements of Accounts → Cost Centres → Category Summary / Cost Centre Break-up. Online Orders shows a loss of ₹8,000 after its share of delivery and platform fees, even though its gross margin is healthy (Retail Counter 25.0%, School Supply 21.2%, Online Orders 24.4%).
Budgets and variance
- 1F11 → Maintain budgets and controls = Yes.
- 2Create → Budget: name “FY 2026-27 Monthly”, period 1-9-2026 to 30-9-2026.
- 3Set budgets for groups or ledgers (type: on nett transactions for income/expenses).
- 4Open Trial Balance or Group Summary and use the budget variance option to compare budget with actual.
| Item | Budget (₹) | Actual (₹) | Variance (₹) | Nature | % |
|---|---|---|---|---|---|
| Sales | 5,20,000 | 5,30,000 | 10,000 | Favourable | 1.9% |
| Salary | 66,000 | 66,000 | 0 | – | 0.0% |
| Rent | 24,000 | 24,000 | 0 | – | 0.0% |
| Electricity | 5,000 | 6,000 | 1,000 | Adverse | 20.0% |
| Delivery & Courier | 7,500 | 9,000 | 1,500 | Adverse | 20.0% |
| Online Platform Fees | 4,500 | 5,400 | 900 | Adverse | 20.0% |
More sales than budget is favourable; more expense than budget is adverse. Electricity (+20%) and delivery (+20%) need explanation.
Solved examples
Example 1: Should Online Orders be closed?
Online Orders: gross profit ₹22,000, allocated expenses ₹30,000 → loss ₹8,000. But salary, rent and electricity (₹19,200 of its share) will continue even if online selling stops. Only delivery ₹5,400 and platform fees ₹5,400 are avoidable, totalling ₹10,800.
Contribution = ₹22,000 – ₹10,800 = ₹11,200 (positive). Closing it would reduce total profit by that amount. Better: reduce delivery cost or raise online prices.
Practice exercises (unsolved – answer hidden)
Try each exercise on paper or in TallyPrime first, then open the answer to check.
🏋️ Practice – do it yourself
Show solution
Retail Counter ₹7,500, School Supply ₹4,500, Online Orders ₹3,000.Show solution
–₹8,000 + ₹5,400 = still a loss of ₹2,600 after allocations. Its contribution, however, rises to ₹16,600 – so the change is clearly worth making.🏅 Job skills unlocked today
Quick quiz
🧠 Quick Quiz – test yourself
Interview corner
💼 Interview Corner
Difference between cost category and cost centre?
A cost category is a parallel way of classifying (e.g. Divisions, Projects); cost centres are the units within a category (Retail, School Supply). One voucher line can be allocated to centres in more than one category.
Would you close a division that shows a net loss after allocations?
Not automatically. Check its contribution (revenue minus avoidable costs). If contribution is positive, closing it lowers total profit because shared fixed costs remain.
Summary
- F11 → Maintain cost centres; ledgers → cost centres applicable.
- Allocate each income/expense line to centres in the voucher.
- Judge divisions by contribution, not just net after allocation.
- Budgets + variance show favourable/adverse items.
Day 27: TDS under the Income-tax Act, 2025 in TallyPrime.
Frequently Asked Questions
Can I add cost centres to old vouchers?
Can budgets stop overspending?
Tally and TallyPrime are trademarks of Tally Solutions Pvt. Ltd. This is an independent course, not affiliated with or endorsed by Tally Solutions. All business names, GSTINs and figures in the examples are fictional samples.
