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  Overheads Distribution

Introduction to Overheads Distribution Stages

There are three stages included in the distribution of overheads:

1. Collection and classification of overheads

After the overheads have been categorized as factory, office and selling, it will be worthwhile to group items covered via each category under appropriate account headings.

a) Numerical method

b) Alphabetical method

c) Alphabetical cum numerical method

2. Departmentalisation of overheads

After collecting and categorizing overheads within suitable account headings the next step included overhead distribution is the departmentalisation of these overheads to different cost centres on an appropriate basis.

a) Allocation of overheads

b) Apportionment of overheads

3. Absorption of overheads

The word "absorption" consider to charging of overheads of a cost centre to dissimilar cost units in such type of way that each cost unit bears a suitable portion of its share of overheads. This is completed by means of overhead rates.

a) Blanket and departmental overhead rates

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