The Process of Controllership

Overhead Costs in Accounting

Overhead costs in accounting are costs incurred to run a business and are not directly related to materials or labor. Although, these costs are included in the product price and are the responsibility of the customer. Overhead costs are paid on an ongoing basis.

Allocation of Overhead Costs

The choice of how to allocate overhead costs is determined by the blocks of costs that represent the expense groupings. Select a departmental allocation method that uses different ratios to allocate overhead costs to each section or division of your company. With 3 product lines, you can group overhead costs into three cost blocks and assign different rates to each group. This method enables the application of various predetermined allocation bases that correspond to the drivers of overhead cost for each department. Despite the different allocations, the firm’s overall overhead costs will not change.

Advantages of the Departmental Allocation Method

The advantages of the departmental allocation method are that it enables the assignment process to be flexible thereby allowing for the rates to change in line with the current operating conditions. Also, the technique is chosen because of its accuracy in providing cost information that is more accurate when compared to the plant-wide allocation technique. However, this method of allocation assumes that the overhead expenses are as a result of machine hours or direct labor and cost hours. In reality, the relationship insinuated by the assumptions is unrealistic.

Smart Packaging Solutions (SPS)

Smart Packaging Solutions (SPS) is a firm that majors in giving customers solutions dedicated to e-passports, ID and banking cards (Smart Packaging Solutions, 2014). The company provides its customers with three product lines for purposes of clarifying its product base to its customers and matching its output to the changing market dynamics. The firm has created three product lines namely “eBoost PAY, eBoost ID, and eBoost PASS.”

References

Smart Packaging Solutions. (2014, November 17). SPS reorganizes its offer along three prodcuct lines. Retrieved from SPS Reliable Technology: http://www.s-p-s.com/news/2014/11/17/sps-reorganizes-its-offer-along-three-product-lines.html