indirect cost allocation - departmental rate

These flashcards cover key vocabulary related to overhead allocation and departmental rates in management accounting.

Departmental Rate

An absorption rate that is customized for each department, allowing for more accurate overhead allocation to products.

Operating Departments

Units within an organization where the central purposes are carried out, such as production or service delivery.

Service Departments

Units that provide support services to operating departments but do not directly contribute to the production of goods or services.

e.g cafeteria

Cost Allocation

The process of assigning indirect costs to cost objects using a systematic method and allocation bases.

allocation method

• Having service departments further complicate the allocation ​

  In that case, it becomes two stages process ​

• Stage 1: service department OH costs are allocated to operating departments​

• Stage 2: OH costs are applied to the cost object i.e., product ​

• Service >> operating departments is called apportion

interdepartmental services

• Some service departments serve other service departments as well along with the operating departments​

• They may get served in return by other service departments ​

• This situation is called interdepartmental or reciprocal services

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