How to allocate the shared expenses to the right business units with the cost allocation methods and the identified activities’ data

Previously, the organization did the business by aiming at the growing number of sales from each business unit because with only the achievement of sale, the company could make the profit as required.

Currently, the philosophy of business proceeding has been changed from focusing only a number of sales to cost supporting sales. As we know that the cost drives the competitive pricing and this enables any business to sustain the ability of competing in the market.

As the cost is so vital, the cost allocation methods happen to properly manage the shared expenses to the right business units. You can follow this link of the cost allocation methods to see what methods there are and the methods’ descriptions. For more information, several departments can incur the shared expenses such as Accounting, General Administration, etc. in addition to IT.

Nevertheless, IT’s shared expenses are raised for demonstrating here to show what cost allocation methods are used to bring the right proportion of the shared expenses to the right users. If we choose the Activity based cost method and/or the Multidimensional method, firstly identify our IT activities and then gather the identified activities’ data such as, tickets of help desk, log-in users for system’s maintenance hours, time keeping for the company’s project and the reports requisitions.

The report below displays the identified activities’ data in a number of hours taken by each business unit and then this data of time usage is used to proportionately allocate the amount of all shared expenses to the right business units.