Cost Management: A Strategic Emphasis 5th Edition by David Stout, Edward Blocher, Gary Cokins

Exercise 5

What are the three methods of departmental cost allocation? Explain how they differ, which is the most preferred, and why.

Step 1 of 3

Departmental Cost Allocation:

Departmental cost allocation refers to the allocation of overhead expenses in the department. This approach recognizes that manufacturing operation is divided into production department and support department.

Hence, cost allocation is used to allocate indirect expense between production department and support department.