What Is Cost Allocation?

Charles T. Horngren, a famous American accountant, believes that cost allocation is "allocating and reallocating a cost or a group of costs to one or more cost targets." Cost allocation is mainly based on the needs of economic decision-making, cost calculation and financial evaluation of enterprises and institutions, as well as the needs of financial reports and reasonable determination of cost compensation standards. Throughout the history of cost accounting, every major development in cost accounting is related to cost allocation.

Cost allocation

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Charles T. Horngren, a famous American accountant, believes that cost allocation is "allocating and reallocating a cost or a group of costs to one or more cost targets." Cost allocation is mainly based on the needs of economic decision-making, cost calculation and financial evaluation of enterprises and institutions, as well as the needs of financial reports and reasonable determination of cost compensation standards. Throughout the history of cost accounting, every major development in cost accounting is related to cost allocation.

Chinese name

Cost method

Foreign name

cost method

Cost assignment

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Cost allocation for variable cost method

For cost allocation, distinguish

Benefit principle

The benefit principle of cost allocation can be summarized in two sentences, that is, who benefits and who bears; how much depends on the degree of benefit. This principle requires that the allocation criteria chosen reflect the extent to which the beneficiaries benefit.

Timeliness

It refers to allocating various costs to beneficiaries in a timely manner, and opposes allocating costs that should have been allocated in the previous or next period to the current period. Failure to allocate costs in a timely manner will inevitably affect the timely calculation of costs and the accuracy of calculation results. It will also necessarily affect the quality of cost information and cause errors in economic decisions.

Cost-effectiveness

Cost allocation should also pay attention to cost-benefit ratio, that is, cost allocation itself has costs, and the benefits brought by cost allocation are far greater than the cost of cost allocation. Of course, this cost-benefit ratio is not very easy to calculate. This requires us to pay attention to moderation when carrying out cost allocation work. Don't put a lot of time and energy on some meaningless data collection and calculation, and pay attention to costs. What effect distribution can bring.

Basic principles

Cost allocation should be based on complete and accurate original records, and subjective assumptions should not be used to make random allocations, let alone deliberately disrupt the order of cost allocation and create false cost information. If the basic work is not done well, the cost allocation will inevitably fall into a passive situation.

Management principle

Cost allocation should help enterprises and institutions strengthen cost management. Cost is a comprehensive indicator, which can be used both for economic forecasting and decision-making, as well as for preparing cost plans and evaluating the performance of various departments. Therefore, improving the scientific nature of cost allocation is extremely beneficial to improving the level of cost management .

Pluralism

The cost allocation standards are diversified, the cost allocation methods are diversified, and the purpose of cost allocation is also diversified. Therefore, when making cost allocation, it must be applied flexibly, and one allocation standard and one allocation method cannot be adopted steadily. Only by following the principle of pluralism, can cost allocation be gradually scientific and can it better play its due role.

Determine cost objects

The company must determine which department, finished product, or process to allocate costs to. Cost objects are often divisions in the enterprise. If a division in an enterprise is granted some decision-making rights and becomes a cost object, the accounting system will evaluate the performance of the segment.

Collective cost

Collect common costs and assign them to cost objects.

Choose cost allocation basis

The cost allocation basis is an activity indicator related to the common cost to which the cost object is to be assigned. Common costs are usually included in cost objects through cost allocation basis allocations. The cost allocation basis can roughly reflect how the cost objects consume common resources.

I. The calculation object of manufacturing costs refers to the objects that are determined to bear the costs in order to collect production costs in the process of cost accounting. Determining costing objects is the core of costing. The manufacturing cost accounting object is hierarchical and must be determined according to production characteristics and management requirements, as follows:

1) For products produced in a single step, the final product shall be the object of cost accounting.

2) Enterprises with multi-step small batch or unit price production should take each piece, batch or order product as the accounting object.

3) For continuous or multi-step production and assembly or multi-step large-scale production, the production steps, semi-finished products, and final products should be taken as the costing objects.

4) Enterprises that produce a large number of varieties and large quantities should use category production as the object of cost accounting.

2. Project cost of manufacturing cost Project refers to the classification of product cost content composition, and its major categories include:

1) Direct materials refer to various materials that constitute the product entity or contribute to the formation of the product. The main categories are: main materials, raw materials, auxiliary materials, spare parts, outsourced semi-finished products, fuel, power, packaging and other materials.

2) Direct labor refers to the wages of production workers who are directly engaged in the manufacture of products. Mainly: wages, bonuses, allowances, subsidies and benefits.

3) Manufacturing costs refer to the various costs of the production units of an enterprise to organize and manage production. The main categories are: wages of management personnel in production units, employee welfare costs, depreciation costs of fixed assets for production, paid use of resources, lease costs, and repair costs. Machine material consumption, low-value consumables, labor insurance premiums, downtime losses during seasonal repairs, and other manufacturing costs.
Direct costs include direct materials and direct labor in the product, and manufacturing costs are indirect costs.

3. Basic accounts for manufacturing cost accounting The basic accounts for manufacturing cost accounting are: "production costs" and "manufacturing costs". The detailed accounting of production costs is set up as a detailed account according to "basic production costs", "auxiliary production costs" and their accounting objects and cost items. The manufacturing expenses shall be set up in a detailed account according to the indirect expenses incurred for the production of products and the provision of labor services. The detailed accounts (tables) of "production cost" and "manufacturing cost" can generally be designed into multiple columns according to cost items. Incurred various production expenses, debited "production costs" and related detailed accounts, carried forward finished products, semi-finished products, and labor services provided that were completed and checked into the inventory, and credited "production costs" and related detailed accounts; " The balance of "production costs" is on the debit side, reflecting the cost of the product that has not yet been completed. Incurring manufacturing expenses, debit "manufacturing expenses" and its related detailed account; allocate manufacturing expenses, credit "manufacturing expenses" and its related detailed account, and there is no balance at the end of the period.
4. Accounting processing of basic production costs 1. Accounting processing procedures for direct material costs 1) Fill in the picking voucher and note the picking department and purpose.
2) At the end of the month, prepare a "Consumable Material Summary Sheet" and send it to the accounting department.
3) The accounting department prepares accounting vouchers.
4) The part of the purchased power that is directly used for production should also be treated as "direct material".
5) If the company uses planned costs for material accounting, the material cost differences are allocated when it is included in production costs.