Choose the Correct Answer: The allotment of whole items of cost to cost centres or cost units is

Step 1: Understand the terminology used in the question. The question is about the allotment of

Choose the Correct Answer: The allotment of whole items of...

Key Concepts

Cost Allocation

Cost allocation is the process of assigning whole, identifiable costs directly to cost centres or cost units where they can be directly traced. This method ensures that specific expenses incurred by an activity or department are fully charged to that unit without the need for further distribution or splitting of the costs.

Cost Apportionment

Cost apportionment involves dividing common or shared costs among various cost centres or cost units based on a rational basis, such as usage or benefit derived. Unlike allocation, which deals with whole identifiable costs, apportionment is used when the costs cannot be traced directly and must be distributed proportionately.

Cost Absorption

Cost absorption refers to the technique of assigning both direct and indirect (overhead) costs to the cost units, ensuring that all production costs are considered in the final product cost. It is particularly significant in manufacturing settings where fixed and variable overheads need to be integrated into product costing.

Cost Measurement

Cost measurement is the process of determining the cost associated with various activities or cost centres by identifying, quantifying, and recording expenses. It lays the foundation for cost allocation and apportionment by providing accurate and relevant cost data necessary for effective management and decision making.

Choose the Correct Answer: The allotment of whole items of cost to cost centres or cost units is known as (a) allocation (b) absorption (c) measurement (d) apportionment

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