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lec21cost_alloii

# lec21cost_alloii - 10 Cost Allocation II â€“ Â 15.501/516 Â...

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Unformatted text preview: 10 Cost Allocation II â€“ Âˇ 15.501/516 Âˇ Âˇ Âˇ Âˇ Technology Death Spirals Accounting Spring 2004 Professor S. Roychowdhury Sloan School of Management Massachusetts Institute of 11 12 to Departments Âľ Â˘ Â˘ Â˘ Allocation of Indirect Costs of a Cost Center Assume the following: IT Department costs \$100,000/month 5 Departments have equal access to IT services Current allocation is \$20,000/month to each C Allocation of Indirect Costs of a Cost Center to Departments Outside Dept. Cost Charge Result A \$ 18,000 \$ 20,000 Unhappy, wants out B \$ 22,000 \$ 20,000 Happy \$ 30,000 \$ 20,000 Happy D \$ 30,000 \$ 20,000 Happy E \$ 30,000 \$ 20,000 Happy Total \$130,000 \$100,000 13 Allocation of Indirect Costs of a Cost Center to Departments Outside Charge Charge Charge Charge Dept. Cost 1 st Iteration 2 nd Iteration 3 rd Iteration 4 th Iteration A \$ 18,000 \$ 20,000 exits B 22,000 20,000 25,000 exits C 30,000 20,000 25,000 33,333 exits D 30,000 20,000 25,000 33,333 exits E 30,000 20,000 25,000 33,333 exits Total \$130,000 \$100,000 \$100,000 \$100,000 ??? This is a â€śdeath spiralâ€ť -- a positive feedback loop. 14 Allocation of Indirect Costs of a Cost Center to Departments Outside Dept. Cost Charge A \$ 18,000 \$ 20,000 B \$ 22,000 \$ 20,000...
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lec21cost_alloii - 10 Cost Allocation II â€“ Â 15.501/516 Â...

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