This article differentiate cost allocation and apportionments:
Allocation Of Overheads or cost allocation
Is to directly and specifically charge the overheads to the cost center.
Two basic conditions exist before we can consider it as allocation:
Hence briefly, allocation is more precise in that direct charging of specific overhead costs to cost centres or departments can be made with a degree of certainty. Effectively the overhead cost is a specific charge to the cost centre.
Apportionment Of Overheads:
Where the overheads cannot be specifically identifiable to the specific cost unit center. Hence the need to find suitable basis to charge the various cost unit with a fair share of the overheads.
Types of Overheads Basis of apportionment
Rent, rates, water and utilities By Area
Office salaries, canteen, supervision By Number of employees
Depreciation of fixed assets Cost/book value
Briefly, cost apportionment is ARBITRARY wherein the cost is spread to departments on what is hopefully a fair and reasonable basis e.g rent and rates on the basis of area occupied, supervision costs based on the number of employees in each department.
- Cost Apportionment and How To Form A Basis To Do The Apportioning of Overheads Costs
- Malaysia Financial Reporting Standard (FRS) 111:Construction Contracts
- Technical Summary Of IFRS 2 -Share Based Payment
- Explain what is over/(under) absorption Of Overheads
- Predetermined Overheads Absorption Rates & Illustration