The strategic role of cost allocation is linked to four objectives (Blocher, Stout, and Cokins, 2010: 232):

1. Determine accurate departmental and product costs as a basis for the evaluation of the cost efficiency of departments and the profitability of different products, for financial reporting, and for tax compliance.

2. Motivate executives for a high level of effort to achieve the goals targeted by senior management.

3. Right incentives are provided to the managers in order to make a decision consistent with the objectives of the senior management.

4. Identify the fairly rewards that managers earn for their effectiveness in their decisions.