Cost Allocations and IBM

Paper Summary:

This paper briefly describes how one company can use cost allocation procedures. It also shows a schedule with comparison to determine what level of growth can be expected for the future which is part of the cost allocations process.

From the Paper:

"All companies have a desire to know where and how much they are spending. Of course the outflow of cash for the valuation of costs is directly incurred by cost centers, divisions or areas that have regular costs for doing business. For example a doctor's office may allocate a cost to each patient visit. However in real world business this is not practical and in the case of IBM they have allocated in general terms on the basis of departmental sales. IBM is a leader in the information technologies industry and as such has spent many years trying to maintain its position and advance in the industry (IBM, 2005). By reviewing the statements of earnings for IBM (year 2004 and 2003) on the following page, we can easily see which areas have assessed costs and how much that costs was in actual dollars. "

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