Introduction
Cost allocation is a common practice in business, where the total cost of a product or service is divided among the various departments or activities that contributed to its creation. However, there are some who argue that cost allocation is unnecessary and that costs should not be shared among different departments. In this article, we will explore the concept of not using cost allocation.
What is Cost Allocation?
Cost allocation is the process of dividing the total cost of a product or service among the various departments or activities that contributed to its creation. This is done to determine the true cost of each department or activity and to help with decision-making about resource allocation and pricing.
The Arguments Against Cost Allocation
Alternatives to Cost Allocation
Those who argue against cost allocation suggest alternative methods for determining the true cost of a product or service:
Conclusion
While cost allocation is a common practice in business, there are those who argue that it is unnecessary and can create conflict and be time-consuming. Alternative methods for determining the true cost of a product or service, such as activity-based costing, direct costing, and throughput accounting, may provide more accurate and efficient ways of allocating costs. Ultimately, the decision to use cost allocation or not will depend on the specific needs and goals of each individual business.