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Week IV: Cost Allocation. Accounting, Finance, SPSS Essay
Essay Instructions:
Why is cost allocation necessary in accounting? Why is it necessary in a joint process? Give an example of a joint product and identify possible by-products.
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Cost Allocation
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Week IV: Cost Allocation
Allocating costs (Direct or Indirect/Variable or Fixed) through an accounting mechanism is a necessary task and factor in your company’s profitability. Cost Allocation is the process of identifying, summarizing, and assigning various costs in your company to cost objects (products, programs, departments, or services) (Baroche, Pinson, Latimier, & Ahmed, 2019). The process of allocating costs to respective objects serves three main motives:
Decision making: When you allocate costs, it helps to determine the cost object(s) that require more funds, thus giving you the chance to weigh short and long-run alternatives. It helps in business planning to reduce costs and increase profits.
Reduce waste: Cost allocation will help you determine the legitimate resource allocation to specific departments. Managers can consider product recycling, reusable sources of energy, etc. to enhance the maximum use of resources and profit.
Determine Price: Businesses should determine profiting products or services prices depending on the costs allocated...
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