Question

Advertisement expenses are apportioned among different departments on the basis of

Answer 1

When all the items are collected properly under suitable account headings, the next step is allocation and apportionment of such expenses to cost centres. This is also known as departmentalisation of overhead. Departmentalisation of production overheads is the process of identifying production overhead expenses with different production/service departments or cost centres. It is done by means of allocation and apportionment of overheads among various departments.

Thus, it involves:

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(i) Allocation and apportionment of overheads among production and service departments and

(ii) Reapportionment of service departments overheads among production departments.

A factory is administratively divided into sub-divisions known as departments for running it smoothly and efficiently. This sub-division is done in such a manner that each department represents a division of activity of the concern such as repairs department, power department, tools department, stores department, cash department, cost department etc.

Following factors must be taken into consideration while organising a concern into a number of departments:

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(i) Every manufacturing process is divided into its natural divisions in order to maintain natural flow of raw materials from the time of the purchase till its conversion into finished goods and sale.

(ii) For ensuring smooth flow of production, the sequence of operations is taken into consideration while determining the location of the various departments.

(iii) For physical control on production and maintaining efficiency of the concern, division of responsibility must be taken into consideration while organising departments. Division of responsibility as far as possible should be clear, without ambiguity and dual control.

Types of Departments:

In a manufacturing concern, there are three types of departments:

(a) Manufacturing or producing departments

(b) Service departments

(c) Partly producing departments.

(а) Producing Departments:

A department where actual process of manufacturing is carried on is called manufacturing or producing department. It covers direct manufacture and is engaged in converting raw materials into finished goods by performing some manual and/or machine operations on any part of the product.

The number of such departments and their number will depend upon the nature of industry, type of work performed and the size of the factory. For example, in Steel Rolling Mill, Hot Mill, Cold Mill, Pickling Shop, Annealing Shop, Hardening, Polishing and Grinding are the producing departments.

(b) Service Departments:

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Service department is an auxiliary and is not directly engaged in production though its existence is very essential for smooth and efficient running of production departments. Such departments are not directly engaged in the conversion of raw materials into finished goods. Such departments (as electricity or repairs and maintenance) render a particular type of service for the benefit of other departments.

The number of departments in a factory and the names to be assigned to them depends upon size of the factory, nature of industry and the nature of service rendered. The service departments, common to most concerns are stores, cost office, personnel department, planning and progress department, tool room, hospital and dispensary, machine maintenance and electrical maintenance section etc.

(c) Partly Producing Departments:

A department may normally be a service department but sometimes does some productive work, so it becomes partly producing department. For example, a carpentry shop which is mainly responsible for the repairs and upkeep of sundry fixtures and fittings may occasionally be required to manufacture packing boxes for direct charge to outturn, will be a partly producing department.

Allocation of Overhead Expenses:

Allocation is the process of identification of overheads with cost centres. An expense which is directly identifiable with a specific cost centre is allocated to that centre. So it is the allotment of whole item of cost to a cost centre or cost unit or refers to the charging of expenses which can be identified wholly with a particular department. For example, the whole of overtime wages paid to the workers relating to a particular department should be charged to that department.

Similarly, the cost of repairs and maintenance of a particular machine should be charged to that particular department wherein the machine is located. Power, if separate meters are provided at each cost centre and fuel oil for boilers are other examples of allocation. So, the term allocation means the allotment of the whole item without division to a 

Answer 2

Answer:When all the items are collected properly under suitable account headings, the next step is allocation and apportionment of such expenses to cost centres. This is also known as departmentalisation of overhead. Departmentalisation of production overheads is the process of identifying production overhead

Explanation: