Which of the following best describes a 'cost allocation' method?

A cost allocation method refers to a structured approach used to distribute indirect costs—such as overhead—across various departments, products, or projects. This systematic process allows organizations to accurately determine the true cost of their products and services, which in turn enables better pricing decisions, performance measurement, and financial reporting.

By using such a method, businesses can ensure that all incurred expenses are fairly assigned, reflecting the consumption of resources by different units of the organization. This clarity is vital as it directly influences profitability analysis, budgeting, and strategic decision-making.

The other options do not align with the standard definition of cost allocation. For instance, increasing product prices does not inherently involve assigning costs; it is more related to pricing strategy. Random assignment of costs undermines the intent of accurate financial tracking and accountability. Likewise, while reducing costs is important, it does not describe the process of systematically assigning costs to various areas, which is the essence of cost allocation.