The departments of a factory generally fall into two categories such as producing department and service department.
In some instances the services furnished benefit the other service department as well as the producing departments. The cost incurred in the operation of service department represents a part of the total factory overhead and must be absorbed in the cost of the product by means of the factory overhead rate. Some service departments common to many industrial concerns are receiving, inspection, storerooms, maintenance, timekeeping, payroll, cost accounting, budgeting, data processing, general office, cafeteria, and plant protection.
A producing department is one in which manual and machine operations are performed directly upon any part of the product manufactured. More specifically, producing departments are those whose costs may be charged to the product because they have contributed directly to its production, such as the machining, forming, upholstering, or assembling,packing departments.
In many cases producing departments are further subdivided into cost centers. Where two or more different types of machines perform operations on a product within the same department, a breakdown into cost centers increases the accuracy of product costs. For example, in the manufacture of cotton yarn and cloth, the producing department “Carding” can be broken up into the cost centers: opening cotton bales, picking, carding, drawing and slubbing etc.
Both service department and producing department will have proportionate role or contribution for organizational success.