Allocation and Apportionment of Overheads starts with the Departmentalization in which it divides the work into the various Departments like in Production, Repairing, Machinery, Human Resource etc. Before knowing the Difference between Allocation and Apportionment of Overheads, firstly know its meaning.
What is Allocation and Apportionment of Overheads?
Allocation of Overheads refers to the allocation of whole item of cost into Cost Centre and Cost Unit. In this, it allocates to the particular cost centre in which they relate.
Apportionment of Overheads refers to the allocation of proportion of item to the Cost Centre and Cost Unit among different departments.
I hope You have understood the meaning. To know better, let’s know the Distinction between Allocation and Apportionment of Overheads in Tabular Form.
|Table of Contents||Allocation of Overheads||Apportionment of Overheads|
|Meaning||Allocation of the whole overheads to Cost Centre and Cost Unit.||Allocating the overheads into different proportions of Cost Centre and Cost Unit.|
|Represent||It represents the cost of the department in which they relate. In this, the overheads are charged to the Solo Existence.||It represents the cost of those departments which includes the different costs of various proportions.|
|Basis||It is allocated and assigned according to direct basis according to single whole cost item.||It is assigned according to different proportion basis because of the different multiple cost item.|
|Applies||When the Overhead Costs are related to specific or Single Department.||When the Overhead Costs are related to different departments.|
|Examples||Examples like Salary of Employees will be allocated to the HR Department, Raw Material Expenses will be allocated to the Production Department etc.||Expenses like Rent, Electricity, Telephone Expenses will be apportioned between Production and Service Department.|
So, this is all about the Difference between Allocation of Overheads and Apportionment of Overheads with examples.
Importance of Allocation of Overheads
- Allocation of Overheads helps to know the Cost of Specific Department.
- Helpful in making decision for the company regarding the costing.
- It also helps in reducing the cost of product.
- Improves the efficiency of the product by reducing the irrelevant cost.
- It helps to determine the total Cost Requirement of each department and also the profitability.
Principles of Apportionment of Overheads
- Service or Use of Benefit Received- If the Service provided to the different departments by any Cost item, then the overhead cost will be apportioned on that basis.
- Ability to Bear- According to this Principle, overheads costs are allocated to those departments which is driving more income or profits to the Business. Those Departments gets higher allocation of costs.
- Survey Criteria- This method comes to use when the benefit of the overhead is not easy to find out from one department. On that basis, a survey conducts to know the exact proportion. For Example- If an Employee works in two Departments. To know how much proportion he/she work in one department, a survey conducts in a department. Like 40% of salary is apportioned from One Department and 60% of salary is apportioned from another department.
- Efficiency and Incentive Principle- Under this principle, apportionment of overheads is based on the Targets of sales or production. If the target sales or production reaches, then it leads to the efficiency and company gives incentives to the sales team. If the sales don’t reach the deciding targets, then it leads to inefficiency of the key people of Sales or Production.
So, this ends to the Allocation and Apportionment of Overheads. If You have any query, please write in the comment section. I will be happy to reply you or you can also email me.
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