Which activity is used to allocate internal support costs to cost centers?

• A. Listing direct costs to cost centers
• B. Allocating internal support costs to cost centers
• C. Assigning direct costs to output centers
• D. Reducing depreciation charges

Answer: (B)

Internal support costs are overhead that cannot be traced to a single cost center. To reflect the true cost of each department’s use of shared services (like HR, IT, or facilities), those costs must be allocated to the cost centers that benefit from them. This allocation distributes the overhead so each center bears a fair portion, improving the accuracy of product or service costing and budgeting. The described activity directly fits this purpose: it allocates internal support costs to the cost centers. Direct costs are already traceable to a specific cost center and don’t require this kind of allocation. Assigning direct costs to output centers links costs to outputs rather than to the internal services consumed by departments. Reducing depreciation charges is an accounting adjustment to asset values, not an allocation of overhead.