It is important for management to understand how different departments and customers contribute to the profitability of a company. Profitability is comprised of both price and costs. Costs can be allocated using a variety of methods. Understanding cost flows and the various methods of allocating costs is important in ensuring profitability.
Evaluate potential cost allocation methods that would impact an organization’s selling prices, and provide examples.
Communicate decisions faced when collecting and allocating indirect costs to customers, and provide examples.
Elaborate on why costs for one customer might be different from that for another customer being sold the same product or service.
