Overview

When doing allocations, it may be necessary to build the allocations in stages. That is, some costs need to be allocated before others, potentially because they need to be re-allocated.

A simple example is the costs due to Information Technology. The marketing department depends on IT services in order to function. However, marketing is not a profit center, and marketing costs may need to be allocated out to various products. That means that the IT costs allocated to marketing will ultimately be re-allocated to other areas or products later.

Hence, in designing an allocation process, it is necessary to keep track of the ordering of allocations, in order to properly account for re-allocations. In the current example, one may choose to allocate IT expense first so that its allocated expense can be re-allocated for any division which is not a profit center.