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Methods of Allocation

I have found that allocation of costs can be a very controversial subject when asking managers to control costs.

I learned that some feel that the methods of allocation may be too arbitrary. If one were asked to design the "perfect" cost allocation methodology, where would one start? I am at a loss?

What would be some of the aspects that should be considered in designing the system?

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I have found that allocation of costs can be a very controversial subject when asking managers to control costs.

I learned that some feel that the methods of allocation may be too arbitrary. If one were asked to design the "perfect" cost allocation methodology, where would one start? I am at a loss?

What would be some of the aspects that should be considered in designing the system?

Overhead is one of the large elements of cost. It includes all the indirect cost like
Indirect materials, wages and expenses. These may be attributable to production, sales or office administration. Company overhead or other costs include non-production overheads. For example selling and distribution overheads or office overheads. There is no fixed percentage of the overheads; it will depend on the organization. Generally smaller organization has lesser overheads than bigger organizations. But over the last 50 years overheads has increased tremendously.
These items do not belong to the unit cost of the toaster. As unit cost only includes manufacturing costs.
Overheads are the costs or class of costs cannot be directly linked to distinct department.
Thus there must be ...

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