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What is cost allocation?

Cost allocation is actually assigning different indirect costs to cost objects. Mainly these costs are not traced. These indirect costs mainly composed of a large percentage of the total cost grouped overall.

There are different purposes of cost allocation:

• One of the main purposes is to provide with information so that a particular decision can be taken.
• It also helps to motivate the managers of the projects and also other employees
• Helps to justify different types of costs
• Also, helps to measure different types of income and also other assets.

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Decisions on cost allocations have different criteria:

1. Equity or the fairness – Which is to establish a fair price under the government. They need to be satisfied with the price that is marked to be sold by the suppliers.
2. Bearing ability – The cost that is allocated should be in good ratio so that the cost can bear them

Moving to the other topic is profitability analysis.

What is profitability analysis?

As the name suggests, it helps in the analysis of the profit made by a business entity. There are various divisions and other factors included in this procedure.

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Some factors that help in determining this analysis are:

• Ability to analyze the customer relation and learn from them
• Determining the customer profitability in a long run
• Retention of the customer
• Helps in understanding the total demand as a whole from well-identified customers
• Helps in determining the growth of sales

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What is sales variance?

Sales variance is a big topic and is often grouped into different stages for a better understanding

• Group 1 – Budget variance: It can be either static or variable. Static is the difference occurring between the budgeted amount (static) and the actual result, whereas variable or the flexible budget is the difference between the variable budgeted amount and the actual result
• Group 2: Volume variance in sales
• Group 3: Total quantity variance in sales
• Group 4: Mix variance of sales

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