Cost Allocation in Small Businesses Research Paper

Cost Allocation in Small Businesses - Research Paper Example As the essay stresses one of the main benefits that companies get through proper cost allocation is awareness of expenses. Accurate assignment of costs to business processes makes it possible for the managers to know exactly the types of expenses incurred in any particular business operation. Here, it needs to be mentioned that such information is not just critical for the development of operating budgets; rather it is also imperative in the calculation of taxes payable to state, local, and federal tax agencies. The way a company assigns costs to different business units have a profound impact on the amount of taxes that the company pays. From the report it is clear that small businesses can also use cost allocation as a tool to know which items associated with any particular department had the most or least impact on the cost generation by that department. For example, if the accounting, marketing, and customer services departments make use of the same printer for producing prints, the company can easily spread the cost out of that printer on all associated departments according to their respective usage of the system. Such an accuracy of cost information results in improving the decision-making mechanisms of a company, as well as helps in enhancing the overall quality of business processes. Cost allocation also results in enhancing the resource usage. Companies allocating costs to different business departments know that the benefits that they will get will definitely supersede the associated costs. To be specific, when a company has to decide whether it should use the resources of any particular business department , it first takes into account the variable and fixed costs of the department. Though cost allocation, a company is able to know the extent the resources can be used without affecting the associated costs. Determines Expenses Accurately Using cost allocation, a company can determine the costs associated with hiring, retaining, and shifting of employees from one department to