Question

which are the vital in determining the
correct amount, proper allocation of costs/expenses, and correct measurement?

Answer 1

Hi,

Cost allocation is the process of identifying, accumulating, and assigning costs to costs objects such as departments, products, programs, or a branch of a company. It involves identifying the costs objects in a company, identifying the costs incurred by the cost objects, and then assigning the costs to the cost objects based on specific criteria.

There are certain points to be kept in mind while Allocating cost / Expenses:-

1. Indentify Cost Objective:- A cost object is the resource that uses or benefits from the item that generates the cost. This might be a product, a project, a customer, a department or an entire region, among other possibilities.

2.Tax Implications:- One major objective of cost allocation is to assist with expense reporting for tax purposes. This may be especially true of organizations spread out over several states.

3. Primary Uses:-Besides budgeting and cost tracking purposes, businesses use cost allocation for financial reporting purposes. It’s also used for calculating the profitability of a department, which helps to inform managerial decisions. Companies also sometimes use cost allocation as a motivating factor for both management and employees, and as a means of justifying incurred expenses and determining reimbursement of costs.