Accounting



What are the advantages of departmentalizing manufacturing overhead costs?

The departmentalizing of manufacturing overhead costs allows for better planning and control if the head of each department is held responsible for the costs and productivity of his or her department.

The departmentalizing of manufacturing overhead costs also allows for the computation and application of several departmental overhead cost rates instead of having a single, plant-wide overhead rate. This is important when there are a variety of products and some require many operations in a department with high overhead rates, while other products require very few operations in the high cost department. There may also be products which require many hours of processing, but they occur in low cost departments.  For instance, the assembly and packing departments of a manufacturer are likely to have very low overhead cost rates. On the other hand, the fabricating and milling departments will likely have much higher overhead cost rates.

Learn more about Manufacturing Overhead.

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About the Author: Harold Averkamp (CPA) has worked as an accountant, consultant, and university accounting instructor for more than 25 years.

He is the author of the 2010 Master Accounting Download Package which has been praised for it's ability to simplify accounting in a way that anybody can understand.




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5 Responses to “What are the advantages of departmentalizing manufacturing overhead costs?”

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  4. basit on February 21st, 2010 2:06 am

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  5. ACoach on February 21st, 2010 4:56 pm

    Take a look at the Explanation of Standard Costing on AccountingCoach.com.

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