Cost allocation and motivation. Environ Petroleum Company is engaged in all phases of exploring, refining, and marketing of oil and petrochemical products. To ensure full compli¬

ance with all applicable laws, the company has a legal department staffed by lawyers who have expertise in a variety of legal areas. The top management of Environ wants to motivate all operating managers to seek legal counsel from the in-house lawyers whenever necessary to avoid violation of any laws during the course ofits operations.

Currently, users of the Legal Department are allocated cost at a $400 standard hourly rate based on actual usage. The chieffinancial officer has suggested that department managers would make more use ofthe Legal Department services, and thus avoid potential legal pitfalls, if the service were provided free of cost to their departments.

Required Comment on the proposal of the chief financial officer. Do you have any alternative suggestion(s)?