BENEFITS OF INDIRECT COSTS ALLOCATION WITH COST DRIVERS
BENEFITS OF INDIRECT COSTS ALLOCATION WITH COST DRIVERS

Summary/Abstract: Due to the technological developments that has occurred in recent years within the business entities, the cost structure was affected, so that the largest share of the production cost is held by the indirect cost. Traditional management accounting and cost calculation methods allocate indirect cost based on an item which serves as a criterion, key or core distribution. The allocation of indirect cost has the disadvantage of an arbitrary distribution, depending on some basis subjectively chosen. The ABC method allocates indirect cost directly to products starting with the activities done for their production rather than through some inaccurate and arbitrary quotas, thus achieving a relevant production cost. The paper will present models of allocating indirect costs to products, both through traditional management accounting and cost calculation methods and with cost drivers.

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