Cost allocation as a part of the control package -a comparison between theory and practice

Abstract

Background: An increase in global competition and the rapid technological change over the last 40 years have led to an expansion in the use of both financial and nonfinancial information in organizations. Positive and early input from controllers often leads to a more carefully prepared product. This input or evaluation can, for example, concern how the costs are allocated or whether it is possible to lower some of these costs. The question about cost allocation has been discussed for at least 50 to 60 years, and it is still going on. There are disagreements about whether or not cost allocation contributes to a more effective and productive organization or whether it has lost its relevance as a control tool. The focus in our thesis will be on cost allocation to organizational departments within a decentralized organization. Key Question: The use of cost allocation as a part of the control package; has it lost its relevance? Purpose: The first purpose is to describe the intentions of cost allocation within a modern decentralized organization. The thesis will focus on whether cost allocation, as a tool in the control package, gives the desired outcome or whether it has lost its relevance. Through a case study on Handelsbanken AB, we will try to describe the intentions of cost allocation at top management level. Another purpose is that, from a rational perspective, we will try to analyze whether there is a gap between the intentions at top management level and how it is perceived at lower levels, and if so, whether parts of the gap might be explained through an institutional perspective. Delimitations: In order to contribute to a deeper understanding within the subject of relevance lost regarding cost allocation, our study will describe one organization, Handelsbanken AB. Method: We have conducted ten interviews, two at top management level and eight with branch managers around Sweden. We have used a qualitative interview method with personal interviews, as our purpose was to get deeper knowledge about the effects experienced by the branch managers.