In the general model for cost allocation, the total allocated cost equals the sum of direct costs plus a fair and reasonable share of indirect costs.
What is meant by allocated cost?
The distribution of a single expense among numerous organizations, departments, or cost centers is known as cost allocation. As an illustration, consider the case where various branches or departments each receive a portion of the health insurance premiums paid by the corporate headquarters.
Why should a company allocate costs?
A cost allocation is a useful method for tracking cost increases on an annual basis. Cost allocation accomplishes three main objectives. Making decisions, reducing waste, and setting prices are three of them.
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