COST ALLOCATION Meaning and
Definition
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Cost allocation is a methodical process of assigning or distributing costs to specific entities or cost centers within an organization. It involves the systematic allocation of expenses to those responsible or benefiting from particular activities or resources. This technique is primarily used for the purpose of accurately determining the overall cost of operations, products, services, or projects, and appropriately attributing costs to the various contributing factors.
In cost allocation, expenses are distributed based on certain predetermined criteria or allocation bases, such as usage, sales volume, square footage, labor hours, or direct consumption. These allocation bases serve as the foundation for determining how costs should be proportionately allocated among different responsible parties or cost units.
The main objective of cost allocation is to ensure fairness and accuracy in assigning costs, allowing for a more comprehensive understanding of the financial impact of specific activities or entities within the organization. By allocating costs to the appropriate cost centers or recipients, management can evaluate and analyze the profitability, efficiency, and cost-effectiveness of various operations, products, or services.
Furthermore, cost allocation is crucial for decision-making purposes, such as pricing strategies, budgeting, resource allocation, and performance evaluation. It enables organizations to identify the true cost of each product or service and assists in assessing the profitability and viability of different business segments.
Overall, cost allocation is a fundamental accounting practice that helps in accurately attributing costs to relevant factors, enhancing transparency, and aiding management decision-making processes.
Common Misspellings for COST ALLOCATION
- xost allocation
- vost allocation
- fost allocation
- dost allocation
- cist allocation
- ckst allocation
- clst allocation
- cpst allocation
- c0st allocation
- c9st allocation
- coat allocation
- cozt allocation
- coxt allocation
- codt allocation
- coet allocation
- cowt allocation
- cosr allocation
- cosf allocation
- cosg allocation
- cosy allocation
Etymology of COST ALLOCATION
The word "cost" has its roots in the Middle English word "coste", which entered English from Old French "coste" meaning "expense" or "price". It further traces back to the Latin word "constāre", which means "to stand together" or "to be fixed".
The word "allocation" comes from the Latin verb "allocāre", which means "to assign" or "to distribute". It is derived from the prefix "ad-" meaning "to" or "toward" and the verb "locāre", which means "to place" or "to put".
Therefore, "cost allocation" refers to the process of assigning or distributing expenses or resources to different projects, departments, or individuals within an organization.
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