What are the different methods of costing cost?
cost allocation methods are used to solve the accounting problem that specific costs do not correspond to specific outputs such as products or services. Different cost allocation methods may include the establishment of an allocation in time, physical measures such as staffing costs or output. In general, methods should be rational, adequate and capable of clear explanation. In some cases, this may be for internal use, such as management, which is able to find out areas where profitability can be increased. In other cases, this may be for external use, for example, when the investor is considering buying part of the company. It can also affect tax purposes and thus the tax that becomes payable. In some cases, financial or tax regulations may limit the methods used. Some costs allocate simple: the cost of purchasing plastic is clearly assignable as the cost of making plastic widgets. If the company sells all widgets at the same price but plastic costsMore to buy than wood, the cost allocation will fairly show that plastic widgets are less profitable.
Other areas of cost allocation are more complicated. For example, electricity used on a production line must be assigned between the cost of producing each type of widget. Some cost allocation methods may include the share of the share of time that the production line produced every type of widget. More complex methods could include taking into account how many of each type was produced at this time. If the situation is complicated, for example, a company that produces 50 plastic widgets daily on Mondays and Tuesdays and 40 plastic widgets a day on Wednesday, Thursday and Friday, which is all used by the Ocation method can have an important effect on cost data.
In some cases, it is necessary to clearly allocate the costs even greater, because the differences are more different. One example would be a company that hasSix retail stores and headquarters. Obviously, the company will want to see how profitable every trade is. This could simply ignore the costs of the headquarters or evenly divide the costs between each trade for accounting purposes.
In this example, the company could also use more specific cost allocation methods. This could divide the cost of headquarters based on the size of each retail store and the turnover of each store. It could even divide them on the basis of the actual share of the time of employees dealing with specific questions from specific stores. This method would mean that a trade that generated many customer complaints or other headquarters would appear less profitable than more low maintenance stores.