Allocation of Overheads

After having collected the overheads under proper standing order numbers the next step is to arrive at the amount for each department or cost centre. This may be through allocation or absorption. According to the Chartered Institute of Management Accountants, London, cost allocation is “that part of cost attribution which charges a specific cost to a cost centre or cost unit”. Thus, the wages paid to maintenance workers as obtained from wages analysis book can be allocated directly to maintenance service cost centre. Similarly indirect material cost can also be allocated to different cost centers according to use by pricing stores requisitions.