Q.Distinguish between allocation and apportionment of overheads.

Both allocation and apportionment are ways of charging collected overhead to departments, but they differ in whether the item belongs to one department or is shared by many.

Allocation and apportionment are the two techniques by which collected overhead is charged to departments (the process called departmentalization). They differ fundamentally in the nature of the item being charged.

Allocation of overhead is the charging of a whole item of overhead directly to one department, because that item was incurred wholly and solely for that department. No sharing or splitting is involved — the entire amount is allotted to a single cost centre. Examples: the salary of the machine-shop foreman (allocated wholly to the machine shop); depreciation of a machine used only in the assembly department; power consumed by a department with its own separate meter.

Apportionment of overhead is the splitting of an item of overhead that is common to several departments, over those departments, on a fair and reasonable basis. The item cannot be traced to any one department because it benefits many, so its total is divided in proportion to a suitable basis. Examples: factory rent apportioned on floor area; the works manager's salary apportioned on number of workers; depreciation of a building apportioned on floor area.

The commonest error is to say apportionment needs no basis while allocation does — it is the other way round: allocation needs no basis (the whole item goes to one department), apportionment needs …