Departmentalization of overheads refers to the process of determining the overhead costs of each department involved in production. To achieve departmentalization, the departments in a factory are divided into two categories: production departments and service departments. Also, departmentalization of overheads is undertaken in two stages: An overview of these stages is given below. The process of charging the full amount of overhead costs to a specific cost center is known as the allocation of factory overheads. This is feasible where the nature of expenses is such that they can be simply identified with a particular cost center. For instance, the salary paid to the foreman of a specific production department can be directly linked to that department, and so it will be directly charged to the department. This technique involves dividing up an item of overhead cost and charging it to the cost centers on an equitable basis. This is feasible for overhead items that cannot be fully allocated to a particular department. For instance, the salary paid to the director of a large factory cannot be charged fully to a single production department. Instead, it must be charged equitably to all of the factory's departments.Definition
Explanation
1. Allocation of Overheads
2. Apportionment of Overhead Expenses
Departmentalization of Overheads FAQs
The stage of departmentalization of factory overheads referred to as allocation of overhead.
Allocation means charging full amount of overhead costs to a specific cost center. It is also known as direct allocation.
Apportionment means dividing up an item of overheads and charging it to the cost centers on an equitable basis. It can be looked upon as indirect allocation.
The need for departmentalization arises because different types of costs are incurred for allocating the factory overheads.
There are two types of costs, direct and indirect costs, associated with departmentalization of factory overheads.
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