What considerations go into choosing a cost allocation plan?
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What considerations go into choosing a cost allocation plan?
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What considerations go into choosing a cost allocation plan? Companies can choose among a few allocation methods. Do some methods make more sense in certain situations than others?
Some of the considerations that should be kept in mind while choosing or developing a cost allocation plan are:
Keep it Simple. The simplest and least costly method possible, based on a measure of relative benefit received, that will produce an equitable allocation of costs to programs and cost categories, should be used. In other words, the chosen cost allocation plan should be very simple to understand and should be cost effective as well.
? Make it Replicable. The process that is developed must be able to be duplicated at any time, and with changes in the organization or funding levels. In other words, the plan should be able to accommodate any changes in the organization or funding levels and should be easily scalable.
? Simplify the Organizational Structure. The organizational structure of the Cost allocation plan should be made no more complicated than necessary to allocate costs.
? Consider What is Required. The required structure and capabilities of the accounting system must be considered in designing an operable cost allocation process. In other words, cost allocation plan should synergize with the existing accounting ...
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