Cost Allocation

Cost allocation is the process of distributing expenses among different departments, products, or services within an organization. It helps determine how much each part of the business should bear in sharing the total costs. For example, if a company incurs costs for utilities, it might allocate those expenses based on the size of each department or the resources each product uses. This ensures a fair assessment of costs, aids in budgeting, and allows for better financial decision-making and performance evaluation across the organization.