Q.Distinguish between Allocation and Apportionment of Overhead, giving one example of each.

The single test that decides between the two is whether an Overhead item can be traced wholly to one department or must be shared among several.

Allocation is the process of charging an Overhead item WHOLLY and directly to the one specific department or cost centre it is identified with, because the entire item was incurred solely for that department. No division or estimation is involved. Example: the salary of a foreman who works exclusively in the Machining department is allocated wholly to Machining.

Apportionment is the process of dividing an Overhead item that is COMMON to two or more departments among those departments, on some reasonable, equitable basis, because the item cannot be traced wholly to any one of them. Example: factory rent, which benefits every department housed in the building, is apportioned among all of them in proportion to the floor area each occupies. …

Students often assume certain TYPES of expense (rent, depreciation, power) are always apportioned and others (salary) are always allocated — Question 3 below shows this is wrong: whether an item is allocated or apportioned depends on whether IT HAPPENS t …