Why cost allocation is important

I have ported a number of programs to C mainly from Perl and generally see a 10x plus speed increase and significant reduction in memory usage without any hand-coded optimizations. NET programs can start up. It is one of the frustrations that I have with the more modern languages.

Why cost allocation is important

It involves identifying the cost object, identifying and accumulating the costs that are incurred and assigning them to the cost object on some reasonable basis. Cost allocation is important because it the process through which costs incurred in producing a certain product or rendering a certain service is calculated.

Why cost allocation is important

If costs are not accurately calculated, a business might never know which products are making money and which ones are losing money.

Mechanism Typical cost allocation mechanism involves: Examples of cost object include a branch, a product line, a service line, a customer, a department, a brand, a project, etc. Cost pool Cost pool is the account head in which costs are accumulated for further assignment to cost objects.

Examples of cost pools include factory rent, insurance, machine maintenance cost, factory fuel, etc. Selection of cost pool depends on the cost allocation base used.

Why cost allocation is important

For example if a company uses just one allocation base say direct labor hours, it might use a broad cost pool such as fixed manufacturing overheads. However, if it uses more specific cost allocation bases, for example labor hours, machine hours, etc.

If increase or decrease in a variable causes an increase or decrease is a cost that variable is a cost driver for that cost. Examples of cost driver include: Number of payments processed can be a good cost driver for salaries of Accounts Payable section of accounting department, Number of purchase orders can be a good cost driver for cost of purchasing department, Number of invoices sent can be a good cost driver for cost of billing department, Number of units shipped can be a good cost driver for cost of distribution department, etc.

While direct costs are easily traced to cost objects, indirect costs are allocated using some systematic approach. A good cost allocation base is something which is an appropriate cost driver for a particular cost pool. While it has plans for expansion it currently offers two products: It employs 2 people: Its costs for the first quarter are as follows:1.

What Is Macroeconomics? Microeconomics is the study of the behavior of individual economic agents. Microeconomics asks how individuals allocate their time, income and wealth among various opportunities for labor, leisure, consumption, and savings.

For new investors, there's no more important concept to master than asset allocation: How to diversify your portfolio with a mix of stocks, bonds, and cash. Aug 31,  · The importance of cost allocation is to help a company determine the amount each item produced will cost. Managerial accounting practices typically provide the tools and guidelines necessary to allocate production costs.

The Fidelity perspective

2. Accounting: Division of income and expenses in certain proportion and, in contrast to an allocation, over two or more accounts, departments, or entities.

Cost allocation (also called cost assignment) is the process of finding cost of different cost objects such as a project, a department, a branch, a customer, etc. It involves identifying the cost object, identifying and accumulating the costs that are incurred and assigning them to the cost object on some reasonable basis.

This is a good overview of why cost allocation is important and methods for doing so. I would advise that the finance/audit committtee review the cost allocation plan and present it to the Board for Board approval, not just Executive Director/CEO approval.

Cost Allocation Methods For Accurate Costing to Maximize Profits