Allocating shared costs across branches without distorting margin
Even allocation methods are easy to defend but often wrong when branches differ in size, role, or revenue mix.
When a second branch opens, finance often spreads headquarters costs evenly per employee or per revenue dollar. Both methods are simple to explain in a board deck. Neither reflects how shared services are actually consumed.
Why even splits fail
A Taichung sales office with twelve staff may use the same ERP login count as Taipei headquarters with forty finance and operations employees—but consume far less legal, compliance, and executive time. Equal per-head allocation makes the branch look less profitable than it is, or headquarters look lean when it is absorbing hidden support load.
Better starting points
Activity-based triggers. Allocate IT help-desk tickets, freight pickups, or warehouse handling hours where data exists. Even partial activity drivers beat pure headcount when operations differ.
Revenue mix weighting. Use only when product or service margins are similar. Cold-chain SKUs using triple the floor space should not be allocated rent by revenue if margin structure differs.
Document the policy. Write a one-page allocation policy before branch performance reviews. Changing methods mid-year to justify a closure or investment confuses leadership and auditors.
Governance
Review allocation assumptions when headcount at any site moves more than 20% in a year or when you add a new cost category (e.g., regional compliance after export expansion).
Our Engagement Process includes allocation review in every Cost Structure Review because misallocated shared costs drive wrong hire, lease, and pricing decisions.