Allocation of overhead can be done three different ways; manually, based on percentage of income or allocate percentages. You may want to use all three of these methods depending on the account; for example, you may set your telephone bill to be based on percentage of income, your rent to allocate percentages and your gas purchases to none to be done manually. If you set up an account in your chart of accounts to automatically allocate overhead you can temporarily override those settings by entering manual allocations. If you choose to change your allocation settings at a later date, both present and past reports will reflect the changes.
Any allocations done using the manual method will appear on the Income Statement By Department (or Division) under the department it was tied to. However, any items using the “automatic” allocations will appear under undepartmentalized unless Include Calculated Overhead is set to Yes in the filter screen of the Income Statement being run.
The manual method means that you are manually entering a department number on expenses when they are entered in areas such as accounts payable, banking, payroll, sales, and the general journal. When expenses are entered you have the option to apply a department number for a portion of the expense or for the entire amount.
Percentage of Income
From Company → Enter Chart of Accounts you can open an account and choose the Allocate Overhead tab and select Percentage of departmental income. This will break out your expenses based on the departmental income. For example, if department 2 represents 35% of your total income for the month then 35% of any expense set up to allocate using this method will be shown for department 2.
From Company → Enter Chart of Accounts you can open an account and choose the Allocate Overhead tab and select Allocate percentages. This allows you to manually assign a percentage of your overhead to each department.