With any business there are activities that incur costs. Some of these activities use more resources than others. A cost line is any identifiable cost that needs distributing proportionally between numerous activities. Not all costs are incurred by each activity.
Cost allocation software
Many costs are general in nature so the cost allocation software enables the sharing of such expenses via a range of intermediary entities known as cost pools en route to establishing a cost for an item or service ie. a cost object.
For example a business has expenses like accounting fees, bank charges, electricity, rent etc which are not product or service dependent. The same applies to employees and materials. Often employee time is spent on a range of activities all of which contribute to multiple revenue sources. Similarly many materials will be used in a range of income producing products or services. Allocating costs like these requires proportional distribution among all the beneficiaries.
Sometimes allocating costs can be direct between Cost lines and Cost Objects but more likely depending on the nature of the cost the allocation will be via Cost pools. Activity based costing facilitates this process enabling Cost lines to be allocated to Tertiary pools, Secondary pools, Primary pools and / or Cost objects