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The literature on cost allocation has grown in recent years.
This paper describes a variety of perspectives on cost allocation,
which have been used to develop a framework for consideration
of the strategic implications of cost allocation. Seminal
works on cost allocation from different dimensions have
been examined to establish a framework. Based on this framework,
an agenda for additional theoretical and empirical research
for cost allocation has been proposed. The relevance of
developing a more conceptual framework for cost allocation
literature in Indian companies has become quite significant.
This paper provides a theoretical framework and a research
agenda for researchers and management scholars.
The research literature on cost allocation systems is extensive
and relatively mature in management accounting terms. In
a domain where new concepts and techniques are constantly
introduced, it is interesting to analyze the recent trends
of this literature, which is only partially included in
published research papers. Behavioral Accounting Research
(BAR), which has a long history in management accounting
(Birnberg and Shields, 1989), has a significant presence
in cost allocation. This is evident from the importance
given to the behavioral aspects in cost allocation by management
accounting scholars and researchers (Drury and El-Shishini,
2005; Horngren et al., 2005; and Pillai, 2007).
The opening of the Indian economy has increased the demand
for change in traditional management accounting practices
and also the internal information needs of Indian managers.
Changes in competition and production environment, changes
in the cost structure of firms and the rapid development
in advanced technologies have been advocated as imposing
pressure for change in management accounting practices (Joshi,
2001). Management accounting practices do not usually rank high
in organizational hierarchies, even though the information
they generate plays a major role in the decision-making
process (Geri and Ronen, 2005). There is sufficient evidence
from previous empirical studies, that to be effective in
the current scenario, management accounting practices must
meet the changing needs of managers. However, there is lack
of knowledge among many managers in India about the important
role of management accounting practices.
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