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A company could encounter problems related to allocation of costs for determining the actual cost of a unit produced.
The first problem that could occur is determining the cost of direct materials pertaining to the good produced when the costs are fluctuating continuously.
The second problem is deciding how much of various workers’ wages should be attributed to the product. For instance 40 workers have worked for producing 3 different products. How much of their wages should be allocated to which product is the decision to be taken.
The third issue is deciding how much of fixed costs should be allocated to the product. For instance a machine is used to manufacture 3 goods. How much depreciation to be allocated to the product.
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