Definition
In accounting parlance, unallocated costs are those that are not specifically assigned to any business unit or account within the company. These commonly include marketing costs or research and development costs, or any such expense that cannot be specifically identified as coming from an account or unit.
Example
Examples of unallocated costs can be office rentals, advertising cost, and insurance expenses.Unallocated costs are crucial for business managers to periodically check and understand as these provide insights into the overall company performance.
Why it matters
It is important to know unallocated costs because it helps in understanding the overall expenses of the company. These can make up a significant portion of the total expenses and are therefore important to monitor.It also helps in identifying potential cost-reduction areas. This can further help in improving the company’s profitability. Finally, it helps in making informed business decisions. The company's management can further decide on where to allocate available resources and how to improve profitability.