What is the cost allocation?
Cost allocation is the process of identifying and assigning the costs of services necessary for the operation of an enterprise or other type of subject. Unlike the cost evaluation, the allocation is less involved in the actual amount of costs and more deals with the allocation or assignment of the costs to the correct unit within the organization. From this point of view, cost allocation can be considered a tool that helps to monitor all costs associated with ongoing operations more efficiently, because each price is associated with specific departments or groups within the organization.
A simple example of cost allocation would be the wage or salary of an employee assigned to work in a particular department. In the hospital, the nurse is usually assigned to a specific wing or floor, with the cost of the general operation of this unit. As long as the nurse continues to work on his assigned shift within this unit, the unit is associated with the salary and advantage of the unit. However, if the nurse is invited to fill in another floor or unitU, such as spending the entire shift working in the standby room, the salary and benefits gained over this period can be very well assigned to the unit where the nurse worked, instead of her permanent wing or floor.
There are several reasons why cost allocation is important. One is related to the precise cost assignment within the organization, so it is possible to know exactly what types of costs have been operated in the area in the organization. This is not only important information that needs to be considered when creating the operating budget, but is also crucial when calculating taxes, which must be paid to local, state and federal tax agencies. In many countries around the world, the way the costs are allocated must be followed by any government regulations that have to be dealt with with the cost of organization.
Another advantage of cost allocation is easy to monitor the expenditure PRO purposes of internal planning. While some expenses are indirect costs and benefit more than one area of operation, direct costs still need to be allocated in a way that is logical and accurate. Although the costs are increasing, which means that they are stretched over several accounting periods, ensuring that the costs are correctly assigned correctly, it can have a big difference in how well each unit or other entity works in their share of the total budget. If it is clear that one unit will exceed its budget, it is possible to take steps to implement restrictions on the non -essential costs of services and at the same time look for ways to adjust the overall budget to allow continued support of basic functions.
Organization of all types and sizizes are involved in the task of costing costs. Businesses use this strategy as a tool for planning and maintaining the budget. Non -profit entities use the tool as a way to provide their members whatMost services, yet most effective to use their resources. Even households can use the concept of cost allocation in the planning of the operating budget for the family. As a means of identifying and properly assignment, this approach to allocation helps to provide financial planning and structure in a way that would otherwise be extremely difficult.