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What is Allocation of Overheads ? Classification and Allocation Overheads

Allocation of Overheads
Allocation of Overheads

Meaning of Allocation of Overheads

When item of overhead can be identified directly with specific department, these are allocated to these departments and thus process of identification of whole items of overhead to specific departments is termed as allocation.

Thus, telephone charge of sales department can be allocated directly to sates department. Similarly, repairs and maintenance of machine can be allocated directly to those department in which machine is installed CAS 3. “Allocation of overhead is assigning a whole item of cost directly to a cost center”.

ALSO READ- Meaning of Collection Allocation | Apportionment of Overhead Expenses

Difference between Classification and Allocation of Overheads

The object of classification of overheads is to make separate group on the basis of functions of organization, nature of expenses or their behavior. On other hand, the object of allocation is to allot the whole items of cost to cost centers or cost units.

In this way, cost classification is primarily concerned with identifying and grouping of expenses into distinct class or group whereas cost allocation deals with the allotment of whole items of cost to cost centers or cost units.

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