Allocation & Apportionment

ALLOCATION
Pritika Jagadale K.C. COLLEGE

Allocation of asset

Allocation OF COST

Distribution of overheads on a departmental basis.

It deal with whole items

Cost are directly allocated.

Overheads cannot be allocated to product& not identified easily

Importance of overhead allocation

Total cost of product depended upon Direct Material, Direct Labor & Overheads.  Direct Material and Direct Labor are directly traceable to the products manufactured.

 Accuracy of product cost computation depends on accurate distribution of overheads to products. Inaccuracies would lead to incorrect decisions especially the pricing decisions.

Apportionment
When the overhead cost is common and it charging to two or more department such cost is divided among these department on equitable basis.

Cost apportionment

It eals

it onl a proportion of items of

ost.

an be apportione to epartments on some suitable basis.

Distribution of ost of one epartment to t e ot er epartments It requires a suitable basis for apportionment.

Factors to be considered for determining the basis of apportionment

Adequacy : The OH rate should be in such a way that equitable apportionment can be made to the cost centers or cost units. Convenience: The OH rate should be simple and easy to understand and also convenient in application. Time factor: The OH rate should have some relation to the time taken by various jobs for completion.

Manual or machine work: There can be different OH rates for manual and machine work.

Differential OH rates: If the nature of work done by the various departments is not same, different OH rates can be funded.

Information : The availability of information affects the selection of the OH rates.

Rent , Rates, Taxes, Air Conditioning, lighting, cost of repair & maintenance of building etc. Welfare expenses, time keeping ,payroll , office ,canteen, recreation supervision, medical expenses Insurance & depreciation on plant and machinery , maintenance charge, insurance on building Repair and maintenance on plant &machinery

FLOOR ARE OCCUPIED

No of employees

Capital value

Machine hours

Electricity charges Work manager remuneration ,salary of supervisor etc. Transport service expenses. Store keeping expenses

Horse power rating Direct labor hour

Truck hours Value of material