Why fair allocations require that you know your full costs....

Internal service providers that allocate their costs to business units are often accused of costing too much, and clients often suspect that they're paying more than their fair share of the department's costs.

The only convincing answer is to show clients exactly what they're getting for their money.

If one thinks of the allocation as a "pre-paid account" -- money put on deposit by the business units in order to buy products/services throughout the year -- then clients may very well argue to increase the allocation so that they can buy more.

If they wish to reduce the allocation, then they'll have to decide what they'll not buy from the internal service provider. That is, a small allocation means they get less.

Again, the solution is found in calculating the true cost of all the organization's products/services.