Question

What are cost objects, cost pools and allocation bases? What role do they play in cost allocation? What is the difference between cost allocation bases and cost drivers?

Answer 1

Cost objects is termed use to describe something to which cost are assigned.For example service, Projects,goods.

.Cost pool is a group of individiual costs that is allocated to cost objects using a single cost driver. for examples of Administrative Overheads are General Administration,Law and Taxation,Corporate office expenses etc.are allocated using single cost driver.

- Cost allocation base is some factor or variable that allows us to allocate costs in a cost pool to a cost object.

Role in allocation

The allocation of cost become important when the cost is indirect cost to production .So the indirect overheads are divided in different objects on the basis of cost pools.

Difference between cost allocation and cost drivers

Cost driver an activity that causes to cost occur..Use cost drivers to allocate indirect costs to production.Allocation of overheads is assigning a whole item of cost to a cost centre.An item of expense which can be directly related to cost centre is to be allocated to cost centre.