Cost Apportionment and How To Form A Basis To Do The Apportioning of Overheads Costs

Question:I was informed that when accountants performed cost apportionment to distribute the costs to a particular cost centre, they also encountered challenges or differ in opinion of using the basis to do so.

(a)     Why is it so and

(b)     Is there any standard basic guideline to do this cost apportionment?

Suggested Answer:

Earlier article on difference between cost apportionment & cost allocation refers.

Cost apportionment arises because most overheads incurred do not arise solely from the existence of a cost centre. For example a supervisor can be responsible for more than one cost centre hence the need to do the apportionment of his payroll or payroll additives.

(a)     Due to complexity of cost items, it is not always possible to use a particular basis of apportioning costs to the various cost centre or department. Hence, sometimes the choice of a suitable basis is a matter of judgment and common sense. This therefore resulted in difference in opinion by even accountants on the basis of apportioning costs. However, as long as the overhead cost is shared fairly by the cost centre then the particular basis of apportionment can be used.

(b)     Below are some common sense or commonly recognized basic guideline on the basis of cost apportionment being tabulated for easy reference:



Area(space taken up by each centre) Rent, rates, heating, light, depreciation of buildings, building services, fire insurance
Book value or capital value Depreciation of machinery, equipments, building, vehicles, insurance.
Number of employees Supervision canteen expenses, welfare, wages, cost office expenses, administration, payment under profit sharing schemes, employer’s liability
Technical estimates Power consumption
Volume of pace Heating, lighting, building, depreciation
Number of material requisition Materials handling, material storage
Weight of materials Material handling
Direct allocation Power( where meters are used)
Value of machine service or horse power of machine Maintenance workers
Value of stock Fire insurance

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