The Cost Allocation Process of Information Technology Essay

The Cost Allocation Process of Information engineering science - Essay ExampleAs more firms have adopted com prescribeer software over manual functioning. Similarly, computer networks also help the segments within a firm to coordinate and communicate among themselves. With all of these advancements make do costs of setting up computer networks and other related costs.Allocation of I.T costs(charging the cost to each department harmonise to its usage of a resource) is among current hot-topic in the corporate world. According to a study through with(p) by Forrester, Computer Hardware and Network costs make up to one-third of the I.T department budget.However, the main(prenominal) problem is of allocating costs among various departments within a firm. The most widely used method by accountants is to allocate these costs is by dividing these costs according to the consumption by the respective department. By telling consumption, we mean that each department will be charged a shar e of cost according to their use. For example, if there are two departments who both use I.T network, now when at the end of fiscal year, the epoch for cost allocation comes, the department with more usage will be charged more and with slight usage will be charged less.The fundamental reason for charging this method is to avoid multiple free-riders problems. Free-riding occurs when those who do not pay for a resource could also use the resource, so no-one is foolish enough to put up his hand and say I will pay for the resource because he knows that even if he doesnt pay for the resource he would be able to use it. For example, lets take an example from out of condition here. Suppose that there is a community of fishermen is living near the sea.