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More Overhead

Dear Dave
I enjoyed your article in the April 1999 issue of CENEWS on the subject of overhead. I have a short follow-up question for you regarding overhead in multi-office companies.

When the corporate (home) office performs centralized functions and assigns some of the costs to the branch offices, what overhead rate, if any, is applied to the costs assigned to the branch office? Would it be the typical rate, e.g. 1.45, or some reduced rate which deletes certain expenses from the general overhead rate calculation?

Dear JT
Every firm has their own particular way of doing this, but I’d say it is more common NOT to assign other general overhead to the specific cost of centralized corporate functions being allocated back to branches or other profit centers. Typically, only the actual costs identified with providing these services are added to form a cost pool without burden of additional general overhead. The pool is then evenly distributed to the branches and profit centers using whatever allocation method each firm feels is the fairest.

Wahby and Associates