Dealing with overhead costs on a departmental basis
In previous posts we've addressed what full costing is and how overheads can be applied in different ways. Now it's time to talk about how the overheads can be sorted into departments.
Think about a medium to large sized business. They are often separated into departments, for example, sales, customer service, manufacturing etc. So what if, when a product's cost is calculated, the overheads were allocated depending on how long the product spends in a certain department?
Instead of departments, we'll refer to the different business areas as cost centres. There can be two types of these:
