Cost allocation


Cost allocation

Cost allocation is a process of attributing cost to particular cost centers. For example the wage of the driver of the purchasing department can be allocated to the purchasing department cost center. It is not necessary to share the wage cost over several different cost centers. Cost and services are not identical to each other.

Cost allocation is the assigning of a common cost to several cost objects. For example, a company might allocate or assign the cost of an expensive computer system to the three main areas of the company that use the system. A company with only one electric meter might allocate the electricity bill to several departments in the company.

Allocation implies that the assigning of the cost is somewhat arbitrary. Some people describe the allocation as the spreading of cost, because of the arbitrary nature of the allocation. Efforts have been made over the years to improve the bases for allocation. In manufacturing, the overhead allocations have moved from plant-wide rates to departmental rates, from direct labor hours to machine hours to activity based costing. The goal is to allocate or assign the costs based on the root causes of the common costs instead of merely spreading the costs...

List of Cost Allocation software solutions

  • Cube Billing, Software-as-a-Service Cost Allocation and Chargeback Software (homepage)

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Look at other dictionaries:

  • cost allocation — ➔ allocation * * * cost allocation UK US noun [U] (also cost apportionment) ► ACCOUNTING the process of calculating the various costs of making a product, providing a service, etc. and which department within a company or organization should pay… …   Financial and business terms

  • cost allocation — The process of assigning costs to one or more cost objects when it is not possible to trace a cost directly. Indirect costs (overheads) always have to be assigned to cost objects using cost allocations. The basis on which costs are assigned to… …   Accounting dictionary

  • cost allocation — The process of assigning costs to one or more cost objects when it is not possible to trace a cost directly. Indirect costs (overheads) always have to be assigned to cost objects using cost allocations. The basis on which costs are assigned to… …   Big dictionary of business and management

  • cost apportionment — ˌcost apˈportionment noun [uncountable] ACCOUNTING FINANCE another name for cost allocation * * * cost apportionment UK US noun [U] ACCOUNTING ► COST ALLOCATION( …   Financial and business terms

  • cost assignment — cost attribution The procedures by which direct or indirect costs are charged to or made the responsibility of particular cost centres, and ultimately charged to the products manufactured or services provided by the organization. Procedures used… …   Accounting dictionary

  • cost assignment — cost attribution The procedures by which direct or indirect costs are charged to or made the responsibility of particular cost centres, and ultimately charged to the products manufactured or services provided by the organization. Procedures used… …   Big dictionary of business and management

  • allocation — Often in open outcry markets the trader who has effected a bargain is not the owner of the trade, having initiated it on behalf of another firm. Allocation refers to the process of allocating, or giving up the trade within the Trade Registration… …   Financial and business terms

  • allocation base — In management accounting, the basis that is used to allocate costs to cost objects. In a traditional costing system there may be a single allocation base for each cost object, whereas in an activity based costing system there may be many such… …   Accounting dictionary

  • allocation base — In management accounting, the basis that is used to allocate costs to cost objects In a traditional costing system there may be a single allocation base for each cost object, whereas in an activity based costing system there may be many such… …   Big dictionary of business and management

  • cost driver — In a system of activity based costing, any factor such as number of units, number of transactions, or duration of transactions that drives the costs arising from a particular activity. When such factors can be clearly identified and measured,… …   Accounting dictionary