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Allocating costs can lead to distorted financial reporting, as it may not accurately reflect the true expenses associated with specific products or services. This can result in poor decision-making, as managers might rely on misleading information for budgeting and pricing strategies. Additionally, the process of cost allocation can be complex and time-consuming, diverting resources from more strategic activities. Lastly, it may create conflicts within departments if allocations are perceived as unfair or arbitrary.

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