cost allocation

Dictionary of Accounting Terms for: cost allocation
cost allocation

identification of costs with cost objectives, also called cost apportionment, cost assignment, cost distribution, and cost reapportionment. There are basically three aspects of cost allocation: (1) choosing the object of costing. Examples are products, processes, jobs, or departments; (2) choosing and accumulating the costs that relate to the object of costing. Examples are manufacturing expenses,selling and administrative expenses, joint costs, common costs, service department costs, and fixed costs; and (3) choosing a method of identifying (2) with (1). For example, a cost allocation base for allocating manufacturing costs would typically be labor-hours, machine-hours, or production units.

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