Allocating costs on the basis of FTE is easy because the necessary data are readily available. The allocations that result, however, might not accurately reflect the use of resources. But is it cost effective to obtain more accurate information that would allow cost allocations to more closely match the use of support services? Determining the proper basis for cost allocation can be very important, but this is not the only consideration to implementing a cost-allocation method that effectively supports the organization’s goals. The process of allocating service costs systematically follows several steps, each of which can affect the success of cost allocations. The steps, which are explained in detail in subsequent sections, follow:

1. Identify the costs to be allocated to internal customers.

2. Choose the appropriate cost-allocation base(s) and rate(s).

3. Select and use a cost-allocation method.

4 . Determine whether the cost allocations achieve the desired results; if they do not, begin the process again.