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Why is it important that we establish pools of indirect costs – namely, those that cannot...

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Finance

Why is it important that we establish pools of indirect costs –namely, those that cannot be directly associated with a unit orbatch of product, like direct material and direct labor – andallocate them to products to achieve a total cost? How is thisuseful for estimating how much something could be made/sold for andfor evaluating profitability of products / divisions? What are someoptions for doing this and criteria to be utilized in selecting thebest methods?

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It is important to establish pools of indirect costs as it helps in the eventual process of charging the indirect costs to the benefiting objectives through an allocation process Establishing pools of indirect costs is necessary as indirect costs are not readily identified with a specific project or    See Answer
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Why is it important that we establish pools of indirect costs –namely, those that cannot be directly associated with a unit orbatch of product, like direct material and direct labor – andallocate them to products to achieve a total cost? How is thisuseful for estimating how much something could be made/sold for andfor evaluating profitability of products / divisions? What are someoptions for doing this and criteria to be utilized in selecting thebest methods?

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