The allocation of costs gives rise to several unique terms. Briefly discuss the following: cost object, cost allocation base, and cost allocation.
What will be an ideal response?
Cost object-the responsibility centers, products, or services to which costs are to be assigned.
Cost allocation base-a measure of activity, physical characteristic, or economic characteristic that is used as the basis for cost allocation. Commonly known as cost drivers, examples may include machine hours, labor cost, number of setups, and a host of other items.
Cost allocation-the process of assigning costs to the cost object by using the cost allocation base.
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