Let’s take an case to look into the detail of this problem.

Suppose that a company runs two divisions, Division A sells Product A and Division B sells Product B.Now they make same revenue and profitability but manage 20 sales reps in Division A and 10 in Division B

It has HR division and Accounting Division to take care of payroll and expense as well.How can we allocate these HR/Accounting cost to these two Divisions?

An impression is Division B runs better because it makes same revenue and profit with less Sales reps.It would be better to allocate cost to align with this impression. Let’s move under this assumption.

Allocation requires key figure. One possibility is revenue, the other is the contribution by HR / Accounting to each Division, e.g. working hours for each division.

Take former, making same revenue so that cost allocate 1 to 1. Latter, in general the more sales reps, more efforts. The alocation is 2 to 1.As a result of comparison, the latter case, Division B bears less cost, in other word, Divison B makes profits more efficiently.

Most important point is it might lead to misleading of business judgement if we did in the quite different way from the intuition. The intuition is not always righ but it is necessary to go for this way after we carefully work out why this allocation show a different picture from the intution.

Back to the daily life, every stakefolders has his interest of this allocation and a different intuition. From accounting perspective, it is a headache to compromise everyones interest.