Overhead Allocation

Definition

The process of distributing indirect costs across products or departments, often using arbitrary methods that accountants swear are reasonable. It's making sure everyone shares blame for the heating bill and executive salaries.

Example Usage

The overhead allocation assigned $2 million of headquarters costs to our division based on headcount, even though we never interact with corporate.

Origin

Industrial accounting developed with mass production in early 20th century

Fun Fact

Arguments over overhead allocation methods have sparked more interdepartmental warfare than any other accounting practice—everyone thinks their division is subsidizing everyone else.

Source: Cost accounting and managerial accounting practices

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vegas

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debtor

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💰 Finance / Accounting

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