common cost
a cost that is incurred to suport a number of cost objects but that cannot be traced to them individually
Common costs can be defined as expenses incurred by a company that are not directly related to producing a particular product or service. Common costs are also known as indirect costs or overhead costs. These costs are typically shared across multiple products, services or departments within the company.
Examples of common costs include rent, utilities, property taxes, insurance, salaries of administrative staff and management, and depreciation of equipment. These costs are essential for the smooth functioning of the business, and they cannot be avoided.
Common costs are usually allocated to products or services using a cost allocation method. This method involves dividing the total common costs by a certain measure, such as the number of products manufactured or the number of employees, to determine the cost per unit.
Understanding common costs is important as it helps businesses determine their overall cost structure and profitability. By allocating common costs appropriately, businesses can accurately determine the costs associated with each product or service, which helps in pricing decisions and profitability analysis.
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