Cost allocation problem in the public sector: evidence from the field

This paper draws on the work of Ramadan (1989) to examine the cost allocation problem and practices to resolve the problem in the public sector. Specifically, the cost allocation problem and the solutions to those problems of a large public sector municipal council in Australia were examined. Results reveal that public sector managers address the problem in a similar manner as that of managers in the private sector. This is in contrast to Tierneys (1991) observations that private sector accounting principles cannot be used in the public sector entities because of differences in contextual, and organizational factors. Some reasons behind similarities in public sector, and private sector accounting practices are discussed, and directions for future research on the topic are suggested.