The Icfai University Journal of Behavioral Finance, Vol. V, No. 3, 2008 40 A Review of Literature on Behavioral Cost Allocation with Recommendations for Future Research Ajay Kumar Pillai* * Lecturer, SCMS School of Technology and Management, Cochin, India. E-mail: Ckrishjay@hotmail.com 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. Introduction 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. © 2008 The Icfai University Press. All Rights Reserved.