Cost Allocation; General Concepts An organization’s service and administrative costs can be substantial, and some or all of these costs usually are allocated to cost objects. Thus, the allocation of...

Cost Allocation; General Concepts An organization’s service and administrative costs can be substantial, and some or all of these costs usually are allocated to cost objects. Thus, the allocation of service and administrative costs can have a significant impact on product cost and pricing, asset valuation, and segment profitability.

Required When service costs are allocated, they are grouped into cost pools and then allocated to departments according to some allocation base. 1. Compare and contrast the benefit-received basis and the cause-and-effect basis for cost allocation. 2. Explain what the ability-to-bear criterion means in selecting an allocation base.