Cost center allocation

What is meant by Cost center allocation?

The term "allocation of cost centers to cost objects" refers to the process of assigning costs incurred in various cost centers (e.g., departments or functional areas) of a company to specific cost objects (e.g., products, projects, or services). This allocation is a key component of management accounting and enables companies to determine the actual costs of producing a product or delivering a service.

Typical software functions in the area of "allocation of cost centers to cost objects":

1. Cost Center Management: Management and assignment of cost centers to ensure a clear separation of costs within a company.
2. Cost Object Management: Recording and managing cost objects for the allocation of costs from the relevant cost centers.
3. Automated Allocation: Automation of the process of allocating costs from cost centers to cost objects based on predefined keys or criteria.
4. Allocation Key Management: Definition and management of allocation keys (e.g., distribution keys) to ensure accurate and traceable cost allocation.
5. Reporting and Analysis: Creation of reports and analyses to review allocations and assess the cost efficiency of projects or products.
6. Simulations and Scenario Analysis: Conducting simulations to predict the impact of different allocation methods on total costs.
7. Audit Trails and Traceability: Ensuring the traceability and transparency of all allocation processes to meet compliance requirements.