OVERHEAD

ALLOCATION & APPORTIONMENT

INTRODUCTION
• Overhead cost are referred as indirect cost
• Eg : indirect material, indirect labour , indirect expenses (rent,
salaries , depreciation, etc..)
• Overheads are those costs that cannot be directly assigned to
product or cost object.
COST CENTRE
• Division cost in organization based on department
• In manufacturing, cost centre can be divide into 2 which are :

• Directly involved in making • Provide service to

product production department
• Eg : machining department, • Eg : maintenance
Packaging department : canteen
STEPS (OVERHEAD
ANALYSIS
1) ALLOCATION
• Cost are allocated directly to the cost centre
2) APPORTIONMENT
• For cost centre cannot be allocated directly to a particular cost
centre
• Cost are apportioned using suitable basis (refer page 50)
3) RE-APPORTIONMENT
• A process of apportion all service cost centre into production
centre.
• The basis for re-apportionment will depend upon the type of
service provided.
• 2 method of re- apportionment :
1) Direct method
- re-apportioned overhead of service cost centre to
production cost centre
2) Step method
- re-apportioned overhead of service cost centre to
production and other service cost centre.
4) ABSORPTION
• Known as ‘OVERHEAD ABSORPTION RATES (OHAR)’
• Allotment of overhead to cost units means of rates separately
calculated for each cost centre.
• Formula :
total overhead of production cost centre
activity level ( total machine hour or total labour hour)
 Example : Question 3 ( Mentari
Merah)
Overhead Basis Machining Assembly Finishing Maintenance Store
Allocated Allocation 36 000 24 000 30 000 18 000 12 000
cost
Ins of Area 17 778 21 333 28 444 14 222 14 222
building
Ins of mac Mac. 15 000 7 500 2 500 2 500 2 500
value
Rent of fac. Area 8 889 10 667 14 222 7 111 7 111
Gen No. of 11 904 23 808 29 760 5 952 2 976
supervision employees
Lighting Area 3 333 4 000 5 333 2 667 2 667
Power Kw. hours 30 780 16 200 9 720 6 480 1 620
Depreciatio Machine 36 000 18 000 6 000 6 000 6 000
n- value
machinery
TOTAL 159 684 125 508 125 979 62 932 49 096
 Question 3 – con’t
Overhead Basis Machining Assembly Finishing Maintenance Store
TOTAL 159 684 125 508 125 979 62 932 49 096
Reapportion
ment :
Maintenance 40% x 62 932 20% x 62932 40% x (62 932)
62 932 -
= 25 172.8 =12586.4
= 25172.8

Store 45% x 49096 25% x 49096 30% x (49 096)

49096 -
= 22093.2 = 12274
= 14728.8
TOTAL 206950 150368.4 165880.6 0 0

OHAR 206950 150368.4 165880.6

60 000 60 000 30 000
= RM =RM 2.51/ =RM
3.45/MH DLH 5.53/DLH