How are staff costs allocated?

• A. Two-thirds in technical and sales; one-third in support functions
• B. All staff costs in cost of sales
• C. Equal split between cost of sales and admin
• D. Costs allocated randomly

Answer: (D)

Allocating staff costs means charging the cost of employees to the activities or departments that actually use their work. The goal is to reflect which parts of the business benefit from that staff time, so the cost mirrors usage rather than being assigned by guesswork.

In practice you base the allocation on a sensible driver of the cost: how much time staff spend in each area, how many staff are tied to each function, or how active each function is (such as the number of transactions or hours of service provided). For example, if shared admin support helps both production and selling activities, you would split those salaries according to the proportion of support time each area consumes or the relative headcount of staff in those areas. This keeps costs tied to real consumption and produces more accurate product costs and departmental overheads.

Allocating all staff costs to one category, splitting them evenly without a basis, or doing so randomly would distort true cost structure and lead to poor business decisions. The key is to link the allocation to the actual use or benefit received by each area.