Cost Accounting 101 Practice Test: Cost Allocation, Customer-Profitability Analysis, and Sales-Variance Analysis — Flashcards

Cost allocation is the process of identifying, aggregating, and assigning costs to cost objects. Cost objects can be activities or items, such as a product, research project, customer, sales region, or department. Cost allocation is used for financial reporting to help inventory or spread costs among different departments. 

Customer profitability analysis (CPA): A management accounting and credit underwriting method that allows businesses and lenders to determine the profitability of each customer or segments of customers. CPA looks at the revenue (or profit) that each individual customer generates.
Sales-variance analysis: Involves comparing the actual sales figures with the budgeted or forecasted sales figures. The variance is calculated by subtracting the budgeted amount from the actual amount. A favorable sales variance arises when the actual sales generated are higher than expected, while a negative variance occurs when actual sales are lower than expectations.