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Cost Allocation for non-traceable costs

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1. If non-traceable costs are not allocated to the various operating units within an organization, who ends up paying these costs?

2. What are some factors we might weigh to determine how much of a share of such costs to pass off to the customer?

3. Does the level of aggregation matter (e.g., division vs.company as a whole)? Is there someone ultimately held accountable for such non-traceable costs?

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Solution Summary

The solution discusses non-traceable costs and the factors which might determine who ends up paying the costs. An analysis of if the level of aggregation matters is given.

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(1) Most of the time they go to period costs, unless there is an allocation method, for example, using a predetermined rate, to allocate to different segments. Ultimately, however, the customers are end up paying for the costs, whether they are product cost or period cost.

(2) A company has their own set of employees, equipment, supplies, etc. And they have a budget for anything ...

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