How is overhead allocated in Indian cost accounting?

Overhead allocation in Indian cost accounting involves assigning indirect costs to cost objects such as products, services, departments, or projects based on a predetermined allocation basis or cost driver. The allocation of overhead costs is necessary to determine the true cost and profitability of cost objects and facilitate decision-making, cost control, and performance evaluation within an organization. Common methods of overhead allocation in Indian cost accounting include predetermined overhead rates, direct labor hours, machine hours, direct labor costs, square footage, or activity levels. These allocation bases are selected based on their correlation with the consumption of resources or the drivers of overhead costs. Overhead allocation aims to distribute indirect costs fairly and accurately among cost objects to reflect their actual usage of resources or the benefits received. By allocating overhead costs appropriately, organizations can improve cost management, optimize resource utilization, and enhance overall efficiency and profitability.