Final answer:
The process of distributing overhead costs among profit centers is called Allocation. It is part of cost accounting that helps businesses in making pricing and production decisions by assessing costs on a per-unit basis.
Step-by-step explanation:
The process of distributing overhead costs among profit centers is called Allocation. When firms divide their total costs, they split them into fixed costs, variable costs, and then possibly into average total costs, average variable costs, and marginal costs. These allocations are critical as they provide firms with insights on a per-unit basis, which is useful for making financial decisions. This breakdown is essential for understanding cost structures and for making informed decisions about production quantities and pricing, especially when combined with an analysis of sales, revenue, and market structure.In conclusion, the cost breakdown into average total cost, average variable cost, and marginal cost serves as a foundation for allocating overhead costs to various profit centers within a business. It is an important step in cost accounting and managerial decision-making.