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## Balance Sheet \$type=three\$count=6\$author=hide\$comment=hide\$label=hide\$date=hide\$show=home\$s=0

For calculation of the cost of product or service, allocation of cost helps us. It is process transferring of exact cost to particular cost center. In other words, when we use resources, its cost is transfer to specific products or services. This is called cost allocation. For example, we produce Model one and model two in a year with the help of drilling press. Total cost of depreciation of drilling press is \$ 10000. \$ 5000 of this depreciation will be allocate to model one and \$ 5000 cost will be allocated to model two.

Like this we can allocate any resources cost to any product or services.

Allocation of cost of service department

We can allocate the cost of service department on some basis. For example, company pays janitors \$ 100000 for cleaning assembly and finishing department. We can allocate this \$ 100000 on the basis of number of square feet. For example, area of assembly department is 20000 square feet and area of finishing department is 30000 s.f. Now allocating rate of janitorial cost is = \$ 100000/50000 s.f. = \$ 2 per square foot. We will transfer cost to assembly department with \$ 40000 ( 20000 d.f. X \$2 per S.f.) and finishing department receives an allocation of \$ 60000 ( 30000 s.f. X \$ 2 per s.f.).

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Accounting Education: Allocation of Costs
Allocation of Costs