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Reallocation of Costs in Information Technology
Finance & Accounting
Pages 3 (753 words)
Reallocation of Costs in Information Technology Reallocation of Costs in Information Technology Introduction With the rapid technological advances in the information technology sector, businesses have gotten confused as to how costs for IT can be allocated in their books…
Process of Allocation of IT Costs When information technology is implemented within organizations, it is important to identify how the costs of this investment will be allocated within the books. Costs for any other investment for instance, physical assets (land, building, furniture, etc.) are easy to understand and allocate. However, allocation for information technology assets and expenses is more difficult to decide because information technology transcends departmental boundaries. Generally, the process used to classify information technology costs is a flat fee mechanism. So, the IT department sets out a specific standard rate for a project, irrespective what the length of the project would be, and who would be the team members within the project, as well as ignoring the level of experience and expertise involved in the project. So in each instance, whether it is project costs or expenses based on running of information technology within the organization, all are allocated as an average based on the number of employees within the organization. In most organizations, this is the method followed and is considered one of the easiest to use and implement. (Branton, 2010; Apptio, 2010; McCann, 2010) Purpose of Cost Allocation The primary reason why organizations allocate costs for information technology to various departments is to ensure that IT costs are accounted for. ...
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