Allocation of Expenses in Departmental Accounting

Allocation of Expenses in Departmental Accounting

Cost allocation is the process of identifying, aggregating and assigning costs to cost objects. Departmental Accounts are accounts relating to the several departments or sections of a busi­ness drawn up with a view to ascertaining their individual performances. Cost allocation is used for financial reporting purposes, to spread costs among departments or inventory items. An expense allocation occurs when indirect costs are assigned to cost objects. The expenses which can be specially incurred for a particular department like salary to a salesman, can be charged directly to the department, but the expenses which could not be allocated precisely to a particular department may be divided among the different departments are as follows:

(1) Sales of Each Department

  • Salesman’s commission
  • Discount allowed
  • Bad debts
  • Carriage Outwards
  • Advertisement
  • Packing expenses
  • Provision for discount on debtors
  • Traveling salesman’s salary and commission

(2) Purchase of Each Department

  • Discount received
  • Provision for discount on creditors
  • Carriage Inward
  • Freight
  • Duty

(3) Area of Floor Space of Each Department

  • Rent
  • Rates and taxes
  • Repair and maintenance Oof building
  • Insurance on building
  • Air conditioning expenses
  • Heating

(4) Value of Assets in Each Department

  • Depreciation of Machinery
  • Repairs and maintenance of plant
  • Insurance premium

(5) Number of Workers

  • Workmen’s compensation insurance
  • Canteen expenses
  • Labor welfare expenses
  • Timekeeping
  • Personnel office
  • Supervision

(6) Direct Wages

  • Compensation to workers
  • Holiday pay
  • Provident fund contribution
  • Group insurance premium

(7) Number of Light Points

  • Lighting expenses

(8) Horse Power of Machine and/or Production Hours

  • Electric Power

(9) Time Devoted by Him for Each Department

  • Work manager’s salary

 

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