Cost Allocation and Cost Apportionment

Cost allocation and cost apportionment are the two procedures which describe the
identification and allotment of costs to cost centers or cost units. Cost allocation refers to the
allotment of all the items of cost to cost centers or cost units whereas cost apportionment
refers to the allotment of proportions of items of cost to cost centers or cost units Thus, the
former involves the process of charging direct expenditure to cost centers or cost units
whereas the latter involves the process of charging indirect expenditure to cost centers or cost
units.
For example, the cost of labor engaged in a service department can be charged wholly and
directly but the canteen expenses of the factory cannot be charged directly and wholly. Its
proportionate share will have to be found out. Charging of costs in the former case will be
termed as allocation of costs whereas in the latter, it will be termed as apportionment of
costs.