Most of the manufacturing process functionally are different and performed by different departments in a factory. Where such a division of functions has been made, some of the departments would be engaged in actual production of goods while others in providing services ancillary thereto.
For the efficient working, a factory is divided into a number of sub-divisions. Such sub-divisions are referred to as departments. In other words, departmentalization of overhead means dividing the factory into several segments called departments or cost centers to which expenses are charged. This sub-division is done in such a manner so that each department represents a division of activity of the organization such as repairs department, power department, tools department, stores department, cost department, cash department, etc. The following factors are taken care of while dividing an organization into number of departments:
- Every manufacturing process is divided into its natural divisions in order to maintain natural flow of raw materials from the time of its purchase till its conversion into finished goods and sale.
- The sequence of operations is taken into consideration while determining the location of various departments.
- Division of responsibility as far as possible should be clear, without ambiguity and dual control.
The departments in a factory can be broadly categorized into the following types:
- Producing or manufacturing departments: A manufacturing or producing department is one in which manual/machine operations and other process of production of articles or commodities takes place. The number of such departments will depend upon the nature of industry, type of work performed and the size of the factory.
- Service departments: These departments are not directly engaged in production but they render special type of service for the benefit of other departments.
- Partly producing departments: In every organization a few departments such that it is not possible to place these departments into a particular category, since they fall within the purview of both categories, i.e. producing and service departments. For example, if a tool room manufactures some special tools for utilization in the main job orders, it is acting as a productive department though it is a service department.
Advantages of Departmentalization:
- It segregates factory overhead costs and computes the total cost of each service departments.
- It makes possible the establishments of control to keep costs at a minimum.
- Ascertainment of cost of different departments helps in computing the cost of different jobs or products which pass through these departments.
