Specific identification of a cost to a final cost objective or to a business segment is a direct allocation method. Accumulating a cost in a specified indirect pool or home office pool for purposes of allocating to multiple cost objectives or segments is an indirect allocation method. A change in direct vs. indirect allocation can occur within a business segment, within a home office, between two segments, between two or more home offices or between a segment and home office.

New examples of changes in the method of allocating costs direct versus indirect include: (1) if company reorganizes its engineering group within a business segment and first line supervisors costs formerly charged to the engineering overhead pool is now charged directly to cost objectives and (2) payroll function was formally performed at Segment A and B but is now performed at the home office level – this is a change for Segments A and B if the home office indirectly allocates the costs of the payroll functions to Segments A and B but is not a change if the home office directly identifies the costs of the payroll functions to A and B.

{TAG_FORM_TITLE}