Big size companies can invest in the best costing systems for more accurate allocation of indirect costs. But perhaps small or medium size ones can't do that and their decisions or purposes like pricing or product mix are more relevant to them in regard to economic existence or competition.
That's a big RQ. First I thought: The more little the company-revenue, the more important is cost allocation. But, think about that it's not only about the company size than on branches, produtcs and more.
Completely agree with Marcel's advice.
One could also say that managing growth from small to large is about keeping a complete view on cost allocations.
Another aspect which you are probably aware of is that when you use a core resource to deliver multiple business services, then the allocation can be done in different ways.
Example: a van carries people, or people and milk packs, or people and milk packs and rice bags and diamonds. If you operate such a service (telecom operators do in some way too: the voice communication saying "I'm on the train" and the message "buy 1M$ of company C shares before 1pm, if it's less than 20$/share"), what do you charge customers, but also how do you allocate costs? To the diamond transport business groups , to the food logistics business groups. The price per 50Kg of diamonds and of rice are very different, now the energy consumption to carry 50Kg does not depend of what is being carried.
If you have two very different categories of customers: Enterprise and consumers, you may use the same platform and resource to serve them. The tuning of cost allocation may lead to the consumer segment to subsidise the enterprise segment or conversely.
Public vs Private is another tricky case. To face Climate Change, you may want to reduce road traffic and to achieve this, favour rail transport maybe? If the roads are "too good" and the fuel for vehicles is cheap, there is no incentive to carry goods and people on rail.
This is leading us to the allocation of "common" costs, making people responsible for resource thay do not care about otherwise. In the early days of industrial production, contaminating water was "ok"... Now it's not acceptable.
Another level of cost allocation is connected with public funds allocation.
Accurate cost allocation is very important f.e. for health care entities, where health services valuatuion should be done.
Costing of health services is very complicated in a big hospital as well as in a small one, due to the fact of services differentiation.
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