What is indirect cost allocation?

Indirect cost allocation is the process of accounting of all costs incurred by enterprises or organizations that do not directly lead to some kind of production. As a result, these costs are often difficult to assign one part of the organization and must sometimes be shared between different departments. One method of indirect allocation of costs is the method of case that attempts to assign indirect costs based on the separation that uses them. Another method is to develop indirect costs that make all indirect costs and assign them based on the size of each department.

Budgeting is a key part of any business operation. It is part of the process to know how much money is needed to maintain traffic over a certain period of time and maintain this capital in reserve. Such a process becomes complicated when it has to be responsible for costs that cannot be directly attributed to some kind of production, but in fact several departments will accumulate at the same time. The eSe thnáMethods for indirect allocation of costs that are effective and accurate.

There are many types of indirect costs that could be accumulated by the organization. For example, if a company does not own a place of business, the cost of renting is basically shared by each department. The salaries of individual employees can be attributed by the department for which they work, but the salaries of the manager supervising all departments can be allocated. Such examples illustrate the problems associated with indirect cost allocation.

Fortunately, there are several different methods that the company can use for indirect cost allocation. One, the case -by -case method attempts to take each indirect cost separately and correspond to them corresponding to them. The advantage of this method is that it can provide the most accurate accounting indirectly, which is the accuracy of budgeting. However, such a method requires a lot of time to complete and can still be inaccurate, kdsY from the costs are shared by many departments.

Another method of allocating indirect costs occurs when the company management assigns an indirect cost of cost to solve the problem. In this method, the total indirect costs are in total. Then they are arranged in each department depending on the size of the budget of the ward. Imagine, for example, that the company collects $ 500 USD (USD) in indirect costs per month and a direct cost of $ 1,500. This means that indirect costs make up 25 percent of the USD budget of $ 2,000, and as such, each department would carry another 25 percent of its direct costs as its indirect load on the cost.