Why should service department costs be allocated to products?

Why should service department costs be allocated to products?

Why should service department costs be allocated to products? In other words, why not simply record the costs as period costs without adding the costs to inventory?

Solution Preview

                                                            Service Costs Allocation

Determining the cost of production of a particular product is one of the most important elements within business management contexts, as it helps the various departments optimize various activities in an effort to minimize costs and improve revenue. Accounting for the cost of different activities within a business is based on the operational functions of the business (Parida, Kumar, Galar, & Stenström, 2015). Consequently, the costs added to the inventory are always based on the operational activities in relation to the product in question. However, service costs are included as part of the costs accounted for in the inventory since the activities within these services directly influence the operational functions of the business.

(329 words)