When Did You Last Change Your Allocation Rate?

Jul 01, 2015

How often do you change your overhead allocation rate? Has it been the same since 1972? Did you just change it last month?

Typically you should review and change your overhead allocation rate every year. If you still have the allocation you had in 1972 you really need to review it. Chances are your driver and your rates are incorrect.

If you are changing your allocation every month, it is probably too frequent. Unless there is a material change that occurs that makes your allocation at least 10% in error it does not need to be updated, it will be accounted for in your variance calculations.

It is important to review your allocation base and rate to make sure that it is accurately reflecting your current operations. If it is not, then it must be revised or you cannot be confident that you are fully recovering your costs.

When was the last time you reviewed your allocation base and rate?

Categories: Cost Accounting