The Procurement Glossary » Cost Allocation

Cost Allocation

Finance & Payments

Definition

The assignment of shared or indirect costs to the departments, projects or products that drive them.

Explanation

Allocation ensures costs land where they belong, giving accurate budgets and product costing. In procurement, correct coding and split-charging of shared purchases underpin fair, useful spend reporting.

Example

The shared printer contract is allocated across departments by page volume.

Related terms

• Cost Center — An organisational unit to which costs are assigned for tracking and accountability.
• Chart of Accounts (CoA) — The structured list of account codes a business uses to record and classify financial transactions.
• Budget — A financial plan allocating expected spend across categories, departments or projects for a period.
• Spend Classification — The categorisation of each transaction into a consistent taxonomy so spend can be analysed by category.

Frequently Asked Questions

What is Cost Allocation?

The assignment of shared or indirect costs to the departments, projects or products that drive them. Allocation ensures costs land where they belong, giving accurate budgets and product costing. In procurement, correct coding and split-charging of shared purchases underpin fair, useful spend reporting.

Can you give an example of Cost Allocation?

The shared printer contract is allocated across departments by page volume.

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