Abstract
Two identical divisions within a firm intend to computer ize the same appl icat ion. The equipment and costs of both divisions are exactly the same and they both have an internal appraisal system which will only permit the project to go ahead if it shows a profit. Both divisions value the gains from the project at £1 million. Division A has an internal policy of only accounting for the variable costs associated with a project, whereas division B operates on a full cost basis. Division A's marginal approach costs the project at £0.5 million, whereas division B's full cost approach works out at £1.5 million, with the consequence that division A gives the go ahead and division B rejects the project. In addition the group management of the firm, when comparing data centre costs, notices that those of division A are less than those of division B and therefore dismisses B's manager for being inefficient.
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