Question

1. Why does support department cost allocation matter to service businesses (such as colleges and universities)? Please explain the importance. Also, identify three businesses, companies, or non-profit organizations that you think would use support department cost allocation. Name the company and their corresponding support departments.

Answer 1

Service department cost matters to service businesses in order to ensure the services they render are priced accurately and the cost of support department is recovered in pricing. College and universities provide education to students and they have a number of support departments like library, administration, finance and accounting, sports, cafeteria, etc which do not generate revenue but incur costs for day to day operating purpose. These costs should be allocated to the admission (operating) department in order to ensure the cost of rendering education is clearly and accurately priced. It is operating department which generates revenue for the colleges and universities through pricing and service department cost allocation helps in cost recovery through proper pricing. Allocation of service department costs helps in accurate service costing which is needed for reliable pricing.

3 business organisation and their service departments

P & G – Support departments are engineering stores, Maintenance, Material stores, Customer service department,

British Petroleum – Support departments are Plant maintenance, Stores department, Civil engineering department, Human resource department,

KPMG Services – Support departments are Administration, Branch Office, IT department,