## Departmentalisation of Overheads
Departmentalisation means distributing factory overhead costs among different departments based on their activities. Departments are either production departments (directly involved in making goods) or service/ancillary departments (support functions like maintenance, canteen, stores).
Cost centres within each department are sub-units used to collect cost data efficiently. They can be:
- Machine-based – where production is capital-intensive
- Personnel-based – where labour drives operations
Assigning code numbers to cost centres simplifies expenditure recording and aids cost control.
### Why Departmentalise? (Advantages)
| Advantage | Explanation |
|---|---|
| Accurate expense estimation | Overheads are allocated precisely to each department |
| Enhanced expense control | Separate figures enable identification of overspending areas |
| Precise cost ascertainment | Indirect expenses flow accurately to jobs passing through departments |
| Tailored costing methods | Each department can use the method best suited to its operations |
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## Key Bases of Apportionment
| Overhead | Basis |
|---|---|
| Rent, building expenses, lighting, fire precaution, air-conditioning | Floor area or volume of department |
| Labour welfare, canteen, time keeping, personnel office, supervision | Number of workers |
| Compensation to workers, holiday pay, ESI/PF, perquisites | Direct wages |
| General overhead | Direct labour hours, direct wages, or machine hours |
| Depreciation, repairs of plant & machinery, insurance of stock | Capital values |
| Power/steam, internal transport, managerial salaries | Technical estimates |
| Lighting expenses (light points) | No. of light points, area, or metered units |
| Electric power (machine operation) | Horsepower of machines, machine hours, or kWh consumed |
| Material handling, stores overhead | Weight/volume/value/units of materials |
### Other Bases
- Analysis of existing conditions – e.g., distributing lighting by fixed light points after actual study
- Ability to pay – based on departmental income; can be inequitable (easy-selling lines bear more cost)
- Efficiency/Incentives – based on predetermined production levels; exceeding the level reduces per-unit overhead cost
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## Allocation vs Apportionment
| Allocation | Apportionment | |
|---|---|---|
| Definition | Charging the entire cost of an item directly to one department | Dividing a shared cost among multiple departments |
| Identifiability | Cost is wholly identifiable with one cost centre | Cost is common to several cost centres |
| Process | Direct charge | Proportional distribution using a suitable base |
| Example | Indirect wages recorded separately for each dept → charged directly | Canteen cost shared between departments in proportion to no. of workers |
> Key principle: Use allocation where the cost can be traced unambiguously; use apportionment where a cost benefits multiple departments and must be split on a rational basis.