A service department is usually associated with a manufacturer. A service department is part of the factory operations, but does not produce the factory's output. Rather, it provides services to the factory's production departments. Some examples of service departments include the factory maintenance department, quality control, factory information technology departments, and the purchasing department.

The head of each service department is held responsible for the costs incurred in his or her service department. In traditional cost accounting each service department's costs are then allocated to the production departments. The service departments' costs become a production department's indirect factory overhead which is then allocated to the output of each production department.

The various methods of allocating service departments' costs are covered in cost accounting textbooks.