How to begin with cost allocation

25.01.2021

Cost allocation in a company or another organization can show valuable information about how much particular services, products, teams or business units cost. It will answer our question why the costs increase and where are they directed. Take a look how to deal with this topic.

If we take particular cost items, no matter whether they are represented by invoices, depreciation or salaries, in most cases we cannot assign them directly to a cost object (e.g. product or organization unit). Many are shared by all the cost objects, e.g. payment for a printing machine which is used to print by the whole organization, shared internet connection, payments for shared servers or cost of IT team.

We have to ask how to allocate these costs to final recipients that we distinguish in a way that will be transparent, that will make sense and that we will be widely accepted. Learn more about ObjectGears solution: Cost allocation or download a study that we have prepared for you.

The solution will utilize models that we will prepare and that will then break down the amounts for us. An example of a model is in the figure below.