ALLOCATION OF DEPARTMENTAL EXPENSES



The problems arise only in indirect expenses which are common for the concern as a whole and may be relating to sales, distribution, administration, finance and till these are distributed among the departments on same suitable basis, the net profits of difference departments cannot be ascertained. Direct expenses are easily indentified with a particular department is known as direct expenses like purchase, wages, salary, carriage etc. these expenses are directly charged to respective department. Such expenses which cannot be directly related to a particular department or cannot have precise allocation may be divided among the different departments as follows:

1.) Selling Expenses:- These expenses include discount allowed, bad debts, selling commission, carriage on sales and should be divided among the different departments on the basis of sales. It must be noted carefully that sales for this purpose also include transfers to other departments.

2.) Building Expenses:- Rent and rates, insurance on building, repairs, etc. are expenses which are relating to building premises and should be distributed among the different departments according to the space occupied by each department. It any department is enjoying any special benefit then charge for these expenses must be adjusted according to the special benefit enjoyed by a particular department. Departments having front location must bear more charges than the departments in rear part of the building.


3.) Heating and lighting:- if there are no separate meters, these may be apportioned among the different departments on the basis of points, lamps used, area or inversely to the number of windows.

4.) Power:- It should be apportioned on the basis of probable usage as determined by numbers and types of machines adjusted where necessary according to running hours in absence of separate meters for each department.

5.) Advertising:-It should be apportioned on the basis of advertising space used by the different departments or on the basis of advertisement for the benefit of all departments must be apportioned equally among the departments.

6.) Insurance Premium:- It must be seen whether the insurance premium has been paid for stock, premises or loss of profit or workmen’s compensation and should be apportioned on the basis of stock carried, proportion of premises occupied, profits earned in the preceding years and wages respectively but if there exists any abnormal feature relating to any department, that may be considered while apportioning such expenses.

7.) Depreciation:- it should be allocated among the different departments on the basis of assets employed in each department.

8.) Labour Welfare expenses:- These should be apportioned among the different departments on the basis of number of employees working in each department.

9.) Carriage inward:- Carriage Inward are related to the purchases so these exp. Should be apportioned among the different departments on the basis of Purchases of each department.


10.) Works manager’s salary:- works manager’s salary should be allocated among the different departments on the basis of time spent in each department.


EXPENSES WHICH CANNOT BE ALLOCATED


There are Certain expenses which cannot be allocated on some equitable basis such as director fees, managerial remuneration, debenture interest, share transfer, income tax, office expenses, general manager’s salary, dividend paid etc., are cannot be allocated or apportioned. These expenses shall be charged to general or combined profit and loss account. Profit of all departments should be brought down in one total and such expenses should be debited and non-departmental profits credited to this profit without making any effort for its apportionment among different departments in combined income account.

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