Cost allocation refers to the attribution of business costs to the goods and services the company produces. This process can be based variably on job-, process-, production output- or activity-based calculations. Managerial accountants review expenditures relating to materials, labor and overhead, breaking down the data to calculate how much of each resource makes it into each item produced. Many instructors focus on these concepts extensively, since each method usually includes several steps that are technically complex.
Budgets are an accounting tool that companies use to outline future cash expenditures. Managerial accounting not only focuses on overall company budgets, but also on specific variances relating to the production process. Accountants attempt to trace every budget variance to determine whether variances are favorable or unfavorable. Unfavorable variances are not necessarily bad if the company needs to produce more items to meet demand. Instructors often create exercises in which students complete individual budgets for business processes and compile one company budget from this information.
Forecasting in managerial accounting typically relates to a break-even or cost/volume/profit analysis. Accountants prepare this information to determine how many items a company must sell to pay for business expenditures. This information can also tell owners and managers how many items a company must sell to make a...