Some companies prefer not to allocate production or plant administration costs to jobs, products or customers because these costs are fixed and independent of the level of activity.

Question

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Production or plant administration costs are usually considered fixed costs because they do not vary with the level of activity. As a result, some companies choose not to allocate these costs to individual jobs, products, or customers because they believe it would distort the true cost of production. Instead, they may allocate these costs to departments or cost centers and use other methods, such as direct labor or machine hours, to allocate costs to jobs or products.

Some Companies Prefer Not to Allocate Production or Plant Administration