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other cost object.

Where the direct cost is traced to a department, then that cost must
be allocated to another cost object probably a product (or products) or even another
department before the ultimate allocation at the product level. What this means is that
a single cost item may be a direct cost to one cost object but an indirect cost to another.
Take for instance the salary of the manager of the Plant Maintenance Department. This
salary is a direct cost traced to the Plant Maintenance Department. APEX then allocates
the cost of this department to the two production departments using “units produced”
as the allocation base. In turn, the costs of the two production departments are allocated
to individual products using “machine hours” as the allocation base. Thus the salary of
the Plant Maintenance Manager is both an indirect cost of each product and a direct cost
of the Plant Maintenance Department. Thirdly, ultimately all costs must be assigned to a
product or service.

Another feature of the costing system is that cost allocation may take place across
departments (responsibility centres): a cost incurred in one department may be
assigned to a cost object outside of that department. The department in which the
cost was incurred may be a production department (also referred to as an operating
department) and the cost object may be another production department. Alternatively,
the department incurring the cost may be a service (or support) department, which must
allocate the cost to the appropriate production (operating) departments.

Figure 1. 3 Cost Tracing and Cost Allocation