Overhead Allocation FAR

Jan 27, 2017
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Hello Everyone,

I am looking for some brainstorming ideas.

Imagine a company with 3 different types of business, and it needs to allocate the company overhead to each type.

Type A has little or no Direct labor, almost all OH and GA labor and Direct equipment (sales).
Type B has little or no direct equipment, little OH and GA and almost all direct labor (services)
Type C is a repair business, lots of OH waiting around for jobs to do but mostly DL when there is some jobs.

When I allocate OH based on Direct labor, type B is getting way too much of the cost. I know first hand because there is little to none true overhead. For example, type A gets 90% of office rent of B but they are in a completely different state.

If I allocate OH based on direct equipment then Type A gets way to much.

If I allocate based on revenue it seems more fair, but I dont know if that is allowed or if any company really does that.

Any Ideas? Input? What are some alternative ways to spread the OH cost? Thanks


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