In addition Vandenberg (201 3), also states that factory overhead takes account of all costs which have direct impact on the production of manufactured goods excluding its direct material and direct labor. This report will examine Shams Local major Oman furniture manufacturer producing various items for both homes and offices.

The company has no accounting section and the allocation of costs of the 2 arrive departments amongst the 3 production departments is carried out by the company’s finance section on the basis of total number of hours worked in each production department. The objective of the report to define a proper system for fixed overhead allocation and apportionment for Shams LLC and design a new allocation system which is effective and can yield the cost and selling price of products at different stages of completion.

Additional challenges arise when multiple service centers use each others services choice of apportion ease – determination of costs to be allocated). Even assuming all allocated costs are relevant and the apportion base is well specified, this presents a difficult goal to achieve. In a “real world” setting most firms are faced with apportioning the costs of a very large number of service centers (I. E. , the manufacturing department alone might apportion costs for maintenance, engineering). However, for simplicity, this example also uses only two set-vice centers (Electricity and Water) and two profit centers (Cars and Trucks).

Service center estimates overhead by apportioning In which bases are Elliott hours and gallons and service center usage. It is essential to note that the service centers are consuming their own services as well as the services of the other service center. Company incurs expense directly or indirectly. No company can survive without incurring costs.

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