Cost Allocation and Your Loss

A common problem in the business world is that certain costs are not sufficiently covered by projects or activities. As a result, the relevant authorities are often unaware of how this relates to the current cost-based pricing method. It is often observed that the problem is more or less recognized and acknowledged by the employees involved, such as project leaders, managers, controllers, and so on. This book sets forth the theory of cost allocation methods. The purpose of improved cost calculation systems and variable costing methods (direct costing) is described. The book also addresses the risks of incorrect cost allocation and how accurate cost pricing can lead to better decision-making. The following cost allocation methods are discussed: Markup methods, Cost center method, Traditional cost accounting systems, Activity-Based Costing (ABC), and Time-Driven ABC. The advantages and disadvantages, applicability, and a step-by-step plan for each of the cost allocation methods mentioned above are outlined. The book provides a theoretical framework for determining suitable cost pricing methods, illustrated with figures.