COST ALLOCATION

 Cost Allocation :

• The term ‘allocation’ refers to the direct assignment of cost to a cost object which can be traced directly. It implies relating overheads directly to the various departments. 
• The estimated amount of various items of manufacturing overheads should be allocated to various cost centres or departments.
• For example- if a separate power meter has been installed for a department, the entire power cost ascertained from the meter is allocated to that department. The salary of the works manager cannot be directly allocated to any one department since he looks after the whole factory. It is, therefore, obvious that many overhead items will remain unallocated after this step.