Common cost
A common cost supports several products, segments or activities and cannot be traced wholly to one of them on the relevant basis. Reports may allocate it for full-cost purposes, but the allocation does not show what will change if a segment is removed. Analyse the underlying resource and decision horizon. Common costs can sometimes be reduced after a larger restructuring, even when unchanged by removing one small activity.
Worked example
Head-office administration of $100,000 is allocated $20,000 to a product. Stopping that product does not save $20,000 if the same office resources and payments remain.
Common mistake
Do not use allocated common cost as the minimum price for a spare-capacity one-off order or as an automatic closure saving.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | MA | Direct | September 2026–June 2027 |
| ACCA | PM | Direct | September 2026–June 2027 |
| FIA | FMA | Direct | September 2026–June 2027 |