Write a brief summary and discuss why cost allocation is important to a manager. Discuss some of the challenges that managers face when they allocate costs and discuss those factors that affect the direct/indirect cost classification. Be specific
What will be an ideal response?
Cost allocation is important to a manager because they must assign costs accurately to a cost object. Managers are challenged to ensure costs are appropriately allocated to a product. For example, if the product costs are not accurate, the true profitability to products is distorted. As a result, a manager could sell a product that should not be sold because it is not profitable to the company.
Some of the factors that affect cost classification include the materiality of the cost in question, the amount of available information-gathering technology, and the product design.
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