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Avoid arbitrary cost allocations by not allocating any costs

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A critic of cost allocation noted, "you can avoid arbitrary cost allocations by not allocating any costs." Please explain.

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Your tutorial is 304 words and gives two examples to illustrate.

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A quote after my own heart!

There is not way to allocate that doesn't include a decision. Why? Because if you cannot assign a cost directly to the product, you have to "decide" how to do it another way. That decision may have great support and your best thinking, but it is never obvious.

Example: The cost of the bricks in home building. This is easy. No allocating. Why? We know exactly where the bricks went (which house, which delivery). ...

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Carol Sargent, PhD
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  • MSc, University of Virginia
  • PhD, Georgia State University
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