Cost driver vs cost allocation base

 · An allocation base is the basis upon which an entity allocates its overhead costs. An allocation base takes the form of a quantity, such as machine hours used, kilowatt hours consumed, or square footage occupied. Cost allocations are mostly used to assign overhead costs to produced inventory, as required by several accounting frameworks. The typical allocation process in a multi Estimated Reading Time: 2 mins.  · However, if it uses more specific cost allocation bases, for example labor hours, machine hours, etc. it might define narrower cost pools. Cost driver. A cost driver is any variable that ‘drives’ some cost. If increase or decrease in a variable causes an increase or decrease is a cost that variable is a cost driver for that www.doorway.ruicity: 8, When used for allocating costs, a cost driver is often called a cost-allocation base. Major costs, such as newsprint for a newspaper and direct professional labour for a law firm, may each be allocated to departments, jobs, and projects on an item-by-item basis, using File Size: KB.

Cost allocation is the process of identifying, accumulating, and assigning costs to costs objects such as departments, products, programs, or a branch of a company. It involves identifying the cost objects in a company, identifying the costs incurred by the cost objects, and then assigning the costs to the cost objects based on specific criteria. When costs are allocated in the right way, the business is able to trace the specific cost objects that are making profits or losses for the company. When used for allocating costs, a cost driver is often called a cost-allocation base. Major costs, such as newsprint for a newspaper and direct professional labour for a law firm, may each be allocated to departments, jobs, and projects on an item-by-item basis, using obvious cost drivers such as tonnes of newsprint con-. An allocation base is the basis upon which an entity allocates its overhead costs. An allocation base takes the form of a quantity, such as machine hours used, kilowatt hours consumed, or square footage occupied. Cost allocations are mostly used to assign overhead costs to produced inventory, as required by several accounting frameworks. The typical allocation process in a multi-department company is: Allocate service department costs to operating departments.

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