How To Lay The Foundations For Success - Manufacturing Operations.

Corporate overhead costs which are to be allocated should be charged as a 'budgeted, lump sum', to prevent the waste of senior management time debating about the method or fairness of the charges to be made. The actual costs each month are likely to be different from the budgeted amount, but the allocation should simply be on the budgeted lump sum basis, and the variance treated as the accountability to the department incurring the cost.

`Scarce' central resources provided for operating companies should be charged on a used basis to encourage sensible and economic use.

For example, a computer software design team providing a centralised internal service within a group could be charged out to users according to the time spent on each job done. This helps to promote efficiency and a value-for-money attitude by the people providing the service. A price for the job could be given to the user in advance and any subsequent cost over-run would have to be absorbed by the central department. Alternatively, if user departments receive a fixed charge, regardless of the extent they use the service, some are likely to think that the charges are unfair and others may be encouraged to use the service indiscrimina

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