allocation accounting definition
Allocation. Definition: An allocation is the process of shifting overhead costs to cost objects, using a rational basis of allotment. Allocations are most commonly used to assign costs to produced goods, which then appear in the financial statements of a business in either the cost of goods sold or the inventory asset.If financial statements are not to be distributed outside of an entity, then there is less need to use allocations.llocations are most commonly used to assign costs to produced goods, which then appear in the financial statements of a business in either the cost of goods sold or the inventory asset. If financial statements are not to be distributed outside of an entity, then there is less need to use allocations. Cost allocation is the process of identifying, aggregating, and assigning costs to cost objects. A cost object is any activity or item for which you want to separately measure costs.Examples of cost objects are a product, a research project, a customer, a sales region, and a department.Cost allocation is used for financial reporting purposes, to spread costs among departments or inventory items.Cost allocation is also used in the calculation of profitability at the department or subsidiary level, which in turn may be used as the basis for bonuses or the funding of additional activities.xamples of cost objects are a product, a research project, a customer, a sales region, and a department. Cost allocation is used for financial reporting purposes, to spread costs among departments or inventory items. Definition. A budget is a financial plan used to estimate revenues and expenditures for a specific period of time. It is a management and planning tool, not just an accounting document. It assists in the allocation of resources.A budget allocation is the amount of funding designated to each expenditure line. budget is a financial plan used to estimate revenues and expenditures for a specific period of time. It is a management and planning tool, not just an accounting document. It assists in the allocation of resources. The allocation key is the basis that is used to allocate costs. It is typically a quantity, such as square meters occupied, number of employees, or man-hours used.For example, two departments, with 20 and 10 employees respectively, share canteen costs.he allocation key is the basis that is used to allocate costs. It is typically a quantity, such as square meters occupied, number of employees, or man-hours used. Purchase price allocation (PPA) is an application of goodwill accounting whereby one company (the acquirer), when purchasing a second company (the target), allocates the purchase price into various assets and liabilities acquired from the transaction.urchase price allocation (PPA) is an application of goodwill accounting whereby one company (the acquirer), when purchasing a second company (the target), allocates the purchase price into various assets and liabilities acquired from the transaction. For example, all costs for the heating cost type, which is an allocation source, can be allocated to the workshop, production, and sales cost centers, which are three allocation targets. Cost accounting. In cost accounting, actual costs of operations, processes, departments, or products are recorded.he allocation key is the basis that is used to allocate costs. It is typically a quantity, such as square meters occupied, number of employees, or man-hours used. Glossary. 1  Client 2  : Cost allocation: the kind of accounting that allows assigning and allocating revenues and expenses to the different cost centers of the company. 3  Cost center: it is a part of the organization (usually identified with a functional area) that we use to allocate revenues and expenses. Client 2  : Cost allocation: the kind of accounting that allows assigning and allocating revenues and expenses to the different cost centers of the company. 3  Cost center: it is a part of the organization (usually identified with a functional area) that we use to allocate revenues and expenses. 1 Cost allocation: the kind of accounting that allows assigning and allocating revenues and expenses to the different cost centers of the company. 2  Cost center: it is a part of the organization (usually identified with a functional area) that we use to allocate revenues and expenses. Client 2  : Cost allocation: the kind of accounting that allows assigning and allocating revenues and expenses to the different cost centers of the company. 3  Cost center: it is a part of the organization (usually identified with a functional area) that we use to allocate revenues and expenses. Cost Allocation and Taxes. A company may allocate costs to its various divisions with the intent of charging extra expenses to those divisions located in high-tax areas, which minimizes the amount of reportable taxable income for those divisions.xamples of cost objects are a product, a research project, a customer, a sales region, and a department. Cost allocation is used for financial reporting purposes, to spread costs among departments or inventory items. In depreciation it is the asset's cost that is assigned to each of the years that the asset is in use. In cost accounting it is the assigning of common production costs to various production departments, product lines, individual products, activities.n depreciation it is the asset's cost that is assigned to each of the years that the asset is in use. In cost accounting it is the assigning of common production costs to various production departments, product lines, individual products, activities.
An allocation is the process of shifting overhead costs to cost objects, using a rational basis of allotment.