## Departmentalisation (Allocation of Overheads over Departments)
### Advantages of Departmentalisation
| Advantage | Explanation |
|---|---|
| Better Estimation of Expenses | Some costs are estimated more precisely when related directly to a department. |
| Better Control | Tracking expenses per department reveals over-spending; comparing budgeted vs actual per department is easier. |
| Ascertainment of Cost for Each Department | Job cost requires knowing expenses of each department the job passes through, ensuring correct allocation of indirect expenses. |
| Suitable Method of Costing | Different costing methods can be used per department (e.g., batch costing for manufacturing parts, output costing for assembly). |
### Some Other Bases of Apportioning Overhead Costs
| Basis | Explanation |
|---|---|
| Analysis / Survey of Existing Conditions | A survey of expenditure determines apportionment. Example: lighting expenses divided on the number of light points in each department. |
| Ability to Pay | Costs distributed based on the income of the paying department (like a taxation principle). Example: sales expenses apportioned on sales volume across territories. ⚠️ May be inequitable — it may not reflect the actual effort of selling. |
| Efficiency / Incentives | Overheads distributed on pre-determined levels of production/sales. If actual production exceeds plan, cost per unit falls; if not met, cost per unit rises. |
> Note on 'Ability to Pay': This basis rewards profitable departments with a higher cost burden regardless of actual resource use, so it is considered inequitable.