Service department cost allocation
In one sentenceCharging the costs of departments that serve others, such as maintenance, warehousing and administration, to production departments or branches on a basis that reflects their use.
Simply put
The maintenance department produces nothing that is sold, but its cost is part of the product's cost. So you allocate it to the departments that benefit from it.
Choose a logical basis: machine hours for maintenance, floor area for rent, and number of employees for human resources.
Worked example
A factory's maintenance department costs 30,000 SAR a month; the cutting department used 600 machine hours and the assembly department 400 hours.
Total hours600 + 400 = 1,000 hours
Cutting department's share30,000 × 600 ÷ 1,000 = 18,000 SAR
Assembly department's share30,000 × 400 ÷ 1,000 = 12,000 SAR
Total allocated18,000 + 12,000 = 30,000 SAR
Formula: Service department cost × (department's usage ÷ total usage)
Don't confuse it with
Overhead absorption rateAllocation moves cost between departments, and the absorption rate then charges it to product units.
in FullScreen ERP
Cost centers in the system show the profitability of each branch, project or department. General accounts