Assigning Overheads to products using departmental rates

Most firms use a two-stage allocation procedure:

• Assign overheads to production departments.

• Allocate overheads to products.

The two-stage allocation procedure involves the following steps:

• Assign overheads to production and service (support) departments (some costs can be directly assigned but others need to be apportioned).

• Re-allocate service (support) department costs to production departments.

• Calculate separate departmental overhead rates.

• Allocate departmental overheads to products.

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