What Is a Distributed Cost?

Malcolm Tatum

A distributed cost is any type of expense that cannot be allocated to a specific task or event, but is shared over several different events or tasks. Businesses routinely engage in the process of distributed cost management in order to track how certain types of expenses have an impact on the management of multiple tasks associated with the company operation. Depending on the nature of the cost involved, it is sometimes possible to develop some sort of structure for allocating specific percentages of the expense to different tasks, making it easier to track the value of the cost to the overall operation.

Businessman giving a thumbs-up
Businessman giving a thumbs-up

There are a number of expenses that may be classed as distributed cost. Depending on the nature of the business operation, labor may be considered to be distributed cost, especially in situations where certain employees participate in a wider range of activities on the behalf of the employer. In addition, costs such as bundled utility costs may also be classified in this manner, since multiple tasks and events may depend on the use of those energy sources as part of the general operation.

Identifying what constitutes a distributed cost may vary somewhat, depending on the type of business operation involved, the culture in which the business operates, and even how governmental standards for assessing taxes on different types of costs may categorize the company expenses. Typically, it is necessary to demonstrate that a particular cost is not connected solely with one particular project or task, but actually provides benefits for multiple tasks and events that occur within the company operation. In some nations, specific guidelines for qualifying expenses as distributed cost are provided, making it easier to arrange the accounting processes to accommodate the tax structure.

Tracking distributed cost is very important to the financial well-being of any company. Just as expenses that can be attributed directly to specific projects and tasks must be managed to best effect, there is also the need to make sure all costs identified as distributable are yielding enough benefit to justify the expense. This usually requires assessing the contribution made by the expense to each of the related tasks and projects and determining if that cost could be lowered without adversely affecting the outcome of those tasks. By managing the efficiency of the distributed cost associated with the business operation, company owners can enjoy operational costs that are lower overall, which in turn means that more of the revenue generated can be retained as net profit.

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