Common cost allocation drivers

Other common cost allocation methods can differ by allocation area, but in general, the allocation is driven by the activity. Below are common allocation methods for shared services: The first rule of cost allocations applies: direct charge expenses when possible to their cost causation.  · 34 Describe and Identify Cost Drivers. Describe and Identify Cost Drivers. As you’ve learned, the most common bases for predetermined overhead are direct labor hours, direct labor dollars, or machine hours. Each of these costs is considered a cost driver because of the causal relationship between the base and the related costs: As the cost driver’s usage increases, the cost of Author: Patty Graybeal, Mitchell Franklin, Dixon Cooper. The fairest and easiest cost allocators to share within a utility allocate cost based on “cost causation” — in other words, the cost driver behaviors behind the cost and the department or utility service drives that cost. The rules of cost allocations are simple: Direct charge all costs that can be specifically identified with a department or activity to the area or activity driving the cost.

34 Describe and Identify Cost Drivers. Describe and Identify Cost Drivers. As you’ve learned, the most common bases for predetermined overhead are direct labor hours, direct labor dollars, or machine hours. Each of these costs is considered a cost driver because of the causal relationship between the base and the related costs: As the cost driver’s usage increases, the cost of overhead increases as well. Cost Allocation. 1. Direct costs. Direct costs are costs that can be attributed to a specific product or service, and they do not need to be allocated to the specific 2. Indirect costs. 3. Overhead costs. 2. Accumulate costs into a cost pool. 1. Assists in the decision-making process. Other common cost allocation methods can differ by allocation area, but in general, the allocation is driven by the activity. Below are common allocation methods for shared services: The first rule of cost allocations applies: direct charge expenses when possible to their cost causation.

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