Allocations influence behavior because they serve as a “tax” on the cost driver. Thus, users are induced to decrease the quantity of driver units consumed. The following depict situations in which allocated costs can potentially affect behavior.
1. You are a division manager, and a large part of your bonus derives from your division’s reported profit. Your firm allocates corporate office expenses to divisions based on the number of employees in each division.
2. You are part of a team designing a new circuit board. Your firm allocates materials handling costs to products using the number of components used as the driver.
3. You are part of a team designing a new circuit board. Your firm allocates materials handling costs to products using the number of unique components (i.e., the number of components used by this product alone) as the driver.
4. You are a product manager. Your firm allocates all manufacturing overhead to products using materials cost as the driver.
5. You are a product manager. Your firm allocates all manufacturing overhead to products using labor costs as the cost driver.

Required:
a. For each of the preceding situations, describe the kinds of actions you might take to reduce the amount of overhead allocated to you. Do these actions necessarily increase the firm’s overall profitability?
b. What might be the firm’s logic in using the specified drivers in each instance. That is, what do you perceive to be the costs and benefits of each allocation mechanism?