Expenses incurred in realizing a due or promised payment. Expenses could include expenditures for hiring a collection agency.

. When collection costs occur, the debtor has pay off debt to get the collector out of collection cost

Allocation means the allotment of proportions of cost to cost centers or cost unit. Cost centre has been defined as a location, person or item of equipment for which costs may be computed and used for the purpose of cost control. eg :marketing, customer service. cost unit is a unit of product or service for which cost is computed. Usually, the allocation of costs would be done based on machine-hours, direct-labor hours etc.

Say a manufacturing company has to allocate the total manufacturing overheads of $30,000 to its Products A, B and C and uses the traditional method of allocating based on the direct-labor hours. The direct labor hours for Products A, B and C are 2000, 1000 and 3000 respectively. Soln: Total labor hours = 6000 Cost allocation: Overheads allocated for Product A = 30000*2000/6000 =$10,000 Overheads allocated for Product B = 30000*1000/6000 = $5,000 Overheads allocated for Product C = 30000*3000/6000 = $15,000

Cost absorption means allotment of overhead expenses to cost units. Overhead absorption is usually achieved by the use of one or a combination of overhead recovery rates. Pre-determined Over head rate = Budgeted Yearly Factory Overhead costs/Budgeted yearly activity either in direct labor hours, machine hours or number of units produced

Example: Say a company follows a practice of allocating the factory overheads based on a pre-determined overhead rate of $12 per unit produced. The number of units produced during the period is 5000. Solution: Cost absorbed would be = 5000 units * $12 per unit= $60,000. This amount would be finally compared with the actual overheads incurred during the end of the period and under-applied or over-applied overheads will be calculated and adjusted accordingly.