Matrix Theory and Cost Allocation.

Abstract The article informs that much of the accounting data used in management control and administrative decision making is a product of antecedent processes of cost allocation and expense distribution. Both of these operations assume the validity of cost divisibility and recombination. Existing practices of accountants in allocating costs and expenses to relevant production orders, products, processes and/or departments would appear to confirm the general acceptability of such an assumption. Effective cost control depends upon an identification of costs with responsibility centers, and the calculation of unit costs is especially important in measuring product or process profitability. In the analysis of costs, an important first problem which confronts the accountant is the measurement of benefits to be derived from the cost or expense elements which are not dearly identifiable with specific departments or cost centers. The reliability of successive allocations necessarily rests upon this first, basic determination. Once the interdepartmental relationships, or associations, are established quantitatively, there remains a second problem of arithmetically distributing costs in the previously established allocation ratios.