MBA Accounting

ALLOCATION Of Overheads:

Is to directly and specifically charge the overheads to the cost center.

Two basic conditions exist before we can consider it as allocation:

• The cost center must have caused the overhead to be incurred and
• The exact amount of overhead must be known

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.

Illustration:

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