A LevelAccountingCambridge (CIE)Revision NotesFundamentals of Cost & Management AccountingAbsorption CostingAllocation & Apportionment of Overheads

Allocation & Apportionment of Overheads (Cambridge (CIE) A Level Accounting): Revision Note

Exam code: 9706

Seina Murakami

Written by: Seina Murakami

Reviewed by: Dan Finlay

Updated on

Allocation & apportionment of overheads

What is allocation?

  • Allocation is the charging of overheads that can be directly attributed to a specific cost centre

    • E.g. salary of workers in a factory can be allocated to production department

  • The entire cost of that overhead is charged to the cost centre

What is apportionment?

  • Apportionment is the charging of overheads that cannot be directly attributed to a cost centre

    • E.g. electricity is shared between the cutting department and the finishing department

  • The cost overhead is shared between cost centres using an appropriate basis

    • E.g. electricity is apportioned based on the amount of energy usage by the departments

  • The table shows different overhead costs and their typical basis of apportionment

Overhead cost

Typical basis of apportionment

Rent/rates

Floor area (sq metres)

Electricity

Kilowatt-hours (KWh)

Depreciation

Cost of machinery

Supervisors' salaries

Number of employees

How are production costs apportioned?

  • Production costs are apportioned to both production and service departments using a suitable basis of apportionment

  • Overhead スペース apportioned スペース to スペース department スペース ストレート A スペース イコール スペース Total スペース of スペース basis スペース of スペース apportionment 分の ストレート A アポストロフィ ストレート s スペース use スペース of スペース basis スペース of スペース apportionment 分数の終わり かける Total スペース overheads

Worked Example

The company uses a system of absorption costing. There are 2 production departments (painting and sewing) and 2 service departments (technical support and personnel). 

The following information is available: 

Painting:

Sewing

Technical support

Personnel

Overheads allocated

250 000

268 000

30 570 

17 500 

Floor area (square metres)

90

70

15

5

Power (kW-hours)

120

320

40

20

The following budgeted overheads are to be apportioned: 

Electricity $20 500 

Building insurance $11 880

Prepare a table to show the apportionment of the budgeted overheads to both the production and service departments.

Answer: 

Electricity

Apportion electricity ($20 500) based on power (kW-hours): 

  • Find the total power used

120 + 320 + 40 + 20 = 500 kW-hours

  • Apportion the total to each department based on its power usage

Painting: (120 ÷ 500) × $20 500 = $4 920 

Sewing: (320 ÷ 500) × $20 500 = $13 120 

Technical support: (40 ÷ 500) × $20 500 = $1 640 

Personnel: (20 ÷ 500) × $20 500 = $820 

Buildings insurance

Apportion buildings insurance ($11 880) based on floor area (square metres): 

  • Find the total floor area

90 + 70 + 15 + 5 = 180 square metres

  • Apportion the total to each department based on its floor area

Painting: (90 ÷ 180) × $11 800 = $5 940 

Sewing: (70 ÷ 180) × $11 800 = $4 620 

Technical support: (15 ÷ 180) × $11 800 = $990 

Personnel: (5 ÷ 180) × $11 800 = $330 

Total overheads

  • Calculate the total overheads for each department

Total

Painting

Sewing

Technical support

Personnel

Overheads allocated

566 070

250 000

268 000

30 570 

17 500

Electricity

20 500 

4 920 

13 120 

1 640

820 

Buildings insurance

11 880

5 940 

4 620

990

330

Total overheads:

598 450

260 860

285 740

33 200

18 650

How are service costs apportioned?

  • Once overheads are allocated and apportioned, service department costs are re-apportioned to production departments using a basis of apportionment related to the usage of that service department

    • E.g. using the number of workers in each department to re-apportion the canteen department cost

  • If there are two or more service departments, then the one which serves the most other departments is re-apportioned first

    • E.g. the canteen department provides a service to the maintenance department so the costs from the canteen department should be reapportioned first

  • The table shows different service department costs and their typical basis of apportionment

Service department cost

Typical basis of apportionment

Canteen/welfare

Number of employees

Stores/warehouse

Number of requisitions/issues

Maintenance

Number of machines

Examiner Tips and Tricks

In exam questions, there are commonly two service departments. The exam question will typically tell you which order to apportion the costs. You usually have to fill in a table.

Worked Example

Given the data below, re-apportion the service department overheads to the production departments and calculate the total overheads for painting and sewing departments.

Painting

Sewing

Technical support

Personnel

Total overheads apportioned

260 860 

285 740

33 200

18 650

Number of employees

20 

15 

5 

10

Technical support hours

400 

60 

-

-

Answer:

Personnel overheads

Re-apportion personnel overheads ($18 650) based on number of employees

  • Calculate the total number of employees

20 + 15 + 5 = 40 employees

  • Apportion the total to each department based on its number of employees

Painting: (20 ÷ 40) × $18 650 = $9 325

Sewing: (15 ÷ 40) × $18 650 = $6 993.75

Technical support: (5 ÷ 40) × $18 650 = $2 331.25

Find the subtotals

Painting: $260 860 + $9 325 = $270 185

Sewing: $285 740 + $6 993.75 = $292 733.75

Technical support: $33 200 + $2 331.25 = $35 531.25

Technical support overheads

Re-apportion technical support overheads based on technical support hours

  • Calculate the total number of technical support hours

400 + 60 = 460 technical support hours

  • Apportion the total to each department based on its number of technical support hours

Painting: (400 ÷ 460) × $35 531.25 = $30 896.74

Sewing: (60 ÷ 460) × $35 531.25 = $4 634.51

Total overheads

  • Calculate the total overheads for each department

Painting

Sewing

Technical support

Personnel

Total overheads apportioned 

260 860

285 740 

33 200

18 650

Apportion personnel

9 325

6 993.75

2 331.25

(18 650) 

Subtotal

270 185

292 733.75

35 531.25

-

Apportion technical support

30 896.74

4 634.51

(35 531.25)

-

Total

301 081.74

297 368.26

-

-

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Author
Reviewer
Seina Murakami

Author: Seina Murakami

Expertise: Accounting Content Creator

Seina studied Pharmacology at UCL, though her professional passion lies deeply in the world of accounting and finance. With an A* in CIE A-Level Accounting and extensive experience tutoring IGCSE and IAL students, she specializes in making complex financial concepts accessible. From developing comprehensive revision resources to collaborating with faculty on lesson materials, Seina is dedicated to helping students bridge the gap between struggling with content and mastering it.

Dan Finlay

Reviewer: Dan Finlay

Expertise: Maths Subject Lead

Dan graduated from the University of Oxford with a First class degree in mathematics. As well as teaching maths for over 8 years, Dan has marked a range of exams for Edexcel, tutored students and taught A Level Accounting. Dan has a keen interest in statistics and probability and their real-life applications.