What is Departmentalization of Overheads

Departmentalization of Overheads

For the efficient working a factory is divided into a number of subdivision such sub-divisions are referred to as departments. In other words. departmentalization of overheads means dividing the factory into several segments called departments or cost control to which expenses are charged.

This sub-division is done in such a manner so that each department represents a division of activity of the organization such as repairs department, power department, tools department, stores department, cost department, cash department, etc.

The overheads are distributed among various departments according to some logical and reasonable basis in order to compute the cost of different-job accurately. In brief, process of departmentalization of overheads can be divided in the following stages:

(1) Allocator Division of Overheads.

(2) Apportionment of Overheads.

(3) Re-apportionment of Overheads of Service Depts.

ALSO READ- What is Meaning of Overhead | Classification of Overhead

Contents

Definition of Overhead

Overhead may be defined as the cost of indirect material, indirect labour and such other expenses, including services, as cannot conveniently charged direct to specific cost center or cost unit. In other words.

overhead is the sum of indirect material cost, indirect wages and indirect expenses Overheads are not associated with direct cost (material, labour, etc.) but they represent the cost of facilities required for carrying on the production.

Generally overhead, indirect expenses and on cost are used as synonymous of each other but practically there is not difference among these terms but on the basis of trend, use of overhead is preferable.

Overhead Accounting and Control

In modern, industrial undertakings, overheads are a very proportion of the total cost and therefore, good deal of attention has to be paid to them.

ALSO READ- Process of Classification of Overheads | Basis of Overhead Classification

Thus, the proportion of overhead costs is appreciably high, therefore, careful planning and control of overhead costs can result in significant saying in the total cost of production Accounting and control of overhead costs is also more complex than mat of other elements of cost, i.e., direct materials and direct labour.

This is because overheads by definition, are indirect costs which cannot be conveniently allocated to cost units, Hence, the knotty problem of apportioning these indirect costs to cost centers and cost units.

Ascertainment of total cost of a cost unit would have been quite simple but for the problems of allocation, apportionment and absorption of overheads costs.

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