Introduction
When it comes to running a business, one of the most important things to consider is cost. In order to make a profit, you need to keep your costs low and your revenue high. However, there is a common misconception that all costs need to be allocated or shared among different departments or products. This is not always the case, and in some situations, it may actually be more beneficial to not allocate costs.
What is Cost Allocation?
Cost allocation is the process of dividing a company's expenses among different departments or products. This is typically done to determine the true cost of producing a product or providing a service. For example, if a company produces two different products, it may allocate the costs of manufacturing, marketing, and distribution to each product based on how much of each resource is used.
Why Not Allocate Costs?
While cost allocation may seem like a logical way to determine the true cost of a product, it can also be time-consuming and complex. In addition, it may not accurately reflect the true cost of producing a product or providing a service. Here are a few reasons why a company may choose not to allocate costs:
Conclusion
While cost allocation can be a useful tool for determining the true cost of producing a product or providing a service, it is not always necessary or practical. In some cases, it may be more beneficial to not allocate costs and instead focus on other factors that are more relevant to decision-making. Ultimately, it's up to each individual company to determine what works best for their specific situation.