Cost Allocation & Forecasting
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Costs may be allocated by the contribution approach, by activities, by standard allocation formulas, or by a number of other approaches. Cost allocation is a part of the cost accounting process. One of the critical factors involved in cost accounting is the differentiation of costs into fixed and variable classifications. Fixed costs are those which must be borne by an organization, regardless of activity levels, while variable costs are those which fluctuate according to activity levels. Through the differentiation of costs into fixed and variable classifications, managers are able to construct breakeven charts and other decision making and control tools. Thus, cost accounting plays a major role in an organization's decision making processes. In addition to fixed/variable distinctions, production costs are also considered in the contexts of full costs, direct costs, indirect costs, job costs, process costs, and so forth. Each of these concepts provides the manager with a different perspective of costs. These different perspectives may provide a means of enhancing the efficiency of an operation, without damaging the integrity of the organization, even though most of the costs derived through the application of these concepts of costs will differ from the costs derived through the applica tion of financial accounting concepts. The use of costs derived through the application of these managerial accounting 1 2concepts permits managers to mak
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elements of the overall organization which may place demands for services on the cor porate aviation department.
Effective forecasting is necessary, if an organization is to make optimal use of the resources available to it. Effec tive forecasting enables a corporate aviation department to make optimal use of facilities, equipment, and personnel. It also enables the organization to better plan for the acquisi tion of these resources.
A forecast is an estimate of the level of demand for a particular product or service. To be meaningful, forecasts must project demand in terms of measurable units of a product or service. There are a number of procedures by which fore casts may be developed. Some, such as subjective opinion fore casts, are not suitable for use with contemporary computer applications. A somewhat more sophisticated forecasting proce dure which may be used with computer applications is the index based forecast. Unfortunately, these forecasts are as good or as bad as the index that serves as its foundation and the degree of correlation between the actual demand and the forecast based on the index.
The best forecasts are those developed through the use of statistical procedures. The best of these procedures inc
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Approximate Word count = 2605
Approximate Pages = 10 (250 words per page)
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