To allocate, in accounting, means to carry out an allocation: dividing a cost or other amount among products, departments, customers or time periods using a basis that is reasonable but not exact. The noun entry covers the concept in full.
What allocating involves
Costs that can be traced directly to one product, such as the wood in a table, do not need allocating. Shared costs do. Factory rent, a supervisor's salary or the depreciation of a building benefit many products at once, so an accountant must choose a basis for splitting them. Common bases include machine hours, labor hours, floor space, number of employees and sales revenue. Each product, department or other cost object then receives a share in proportion to its use of that basis.
For example, if a factory's $60,000 monthly indirect cost is allocated on machine hours, and Product A uses 2,000 of the 6,000 hours worked, Product A is allocated $20,000. The result depends heavily on the basis chosen, which is why allocated costs are described as somewhat arbitrary. Methods such as activity-based costing try to reduce that arbitrariness by using several bases linked to the activities that actually drive the cost.
The word is also used for spreading a cost over time, as when a building's cost is allocated to the years of its useful life through depreciation.