Question

Under the Standard Cost Accounting Practices what is considered and allowable or an unallowable cost. Please give examples of each.

Answer 1

Under Standard Cost Accounting Practices ,

1) Allowable Cost - Allowable Costs or Covered costs are those costs or expenses that are fully reimbursed by the contracting party and are generally included in a contacted service or product .

Example of Allowable Cost : Government hired a company to collect and dispose garbage , it can state that it will reimburse all the transportation cost related to the task given. Hence transportation cost only will be considered as allowable cost as it is specified in the contract

2) Unallowable Cost - Unallowable Costs or Uncovered costs are those costs or expenses that are not reimbursed or not stated in the contracted service or product by the contracting party .

Example of Unallowable Cost : Government hired the company to collect and dispose garbage , it states that it will reimburse all the transportation cost , other than the transportation cost like breakdown , damages, insurance etc will not be covered or reimbursed , these costs are considered as Unallowable costs as not specified in the contract .