Cost allocation

Cost allocation assigns costs to products, orders or departments. Traceable costs can be assigned directly, while shared costs need an allocation basis. That choice affects results, and a causal relationship is more informative than arbitrary distribution.[1]

Allocating warehouse rent by order count produces a different view from allocating by occupied space. Define the decision the calculation should support and keep methods consistent across comparisons. An allocated loss on one item does not automatically mean removing it will eliminate those shared costs.