One cost term that isn’t familiar is attributable cost. As an accountant or manager, you may have used it in making decisions unconsciously. Instead of forecasting trends in a business, this method tends to abandon what’s not working and focus on what works. Let’s explain.
Definition of Attributable Costs
1. According to the ATSWA study pack, Attributable costs “are costs that could be avoided on average if a product or a function is discontinued entirely.”
2. It can also be defined as the average avoided cost per unit if a product, project, or function were discontinued without a change in the supporting structure of an organization.
These costs are both variable and fixed costs. As you know, to make decisions, management considers the impact of these two cost elements. While fixed costs are spread among all products and services of the firm. Variable costs are traceable to all products and services. Therefore, in using attributable cost only fixed cost that is divisible to all departments or functions of a business is considered.
One of the major assumptions in attributable costs is that a product or function or project is abandoned. This is done to see if the organization will benefit from it. This is a practical step and also means the management team is using trial and error techniques to solve a major problem. This can be used instead of forecasting trends.
For example, the entity might decide to stop spending on deliveries or logistics. And tells customers to do the delivery themselves or outsource it. As a result, the cost associated with delivering goods, such as the depreciation of delivery vans, fuel, and salary to delivery man can be avoided.
In final words, attributable costs are the average cost avoided because a product, project, or function is discontinued. It is rarely used in real life to make decisions. Instead, trends, marginal costs, or absorption costs are examined when management takes action.