What is the difference between apportionment and allocation?

The word “apportionment” generally refers to the division of net income between jurisdiction by the use of a formula containing apportionment factors, and the word “allocation” generally refers to the assignment of net income to a particular jurisdiction.

What is allocation and apportionment of overheads with example?

Examples. Examples like Salary of Employees will be allocated to the HR Department, Raw Material Expenses will be allocated to the Production Department etc. Expenses like Rent, Electricity, Telephone Expenses will be apportioned between Production and Service Department.

Why is allocation and apportionment important?

Allocation and apportionment of overhead expenses to the respective departments facilitate control of overhead cost by means of budgets predetermined.

What is difference between cost allocation and cost apportionment?

Thus allocation is a direct process of identifying overheads to cost units or cost centres. So the term allocation means allotment of whole item of cost to a particular cost centre or cost object without any division. Cost Apportionment is the allotment of proportions of items to cost centers.

What is allocation apportionment and absorption?

The distribution of such overhead to several departments or cost centres proportionately on some equitable basis is known as apportionment of overheads. The process of the overhead of a cost centre or department to different cost units or product is called absorption of overhead.

What is basis of apportionment?

Basis for Apportionment The basis used for apportionment of costs is the number of cost centres when the expenses are to be shared equitably between them. In simple terms, the expenses which can not be charged against a specific department are dispersed over multiple departments.

What are the basis of apportionment?

Basis for Apportionment This happens when an overhead can not be assigned directly to one specific cost centre. Rent and business rates, for example, are sometimes paid by individual cost centres, and floor space is also used as a basis for apportionment to share costs between relevant cost centres.

What are the principles of apportionment?

Apportionment is the process of distributing overhead items to cost centers on a fair and reasonable basis. The principle is that if an overhead item cannot be fully allocated to one cost center, it should be apportioned over related cost centers.

What is cost apportionment example?

In simple terms, the expenses which can not be charged against a specific department are dispersed over multiple departments. For example, the wages paid to the factory head, factory rent, electricity, etc. cannot be charged to a particular department, then these can be apportioned among several departments.

What is the apportionment of overhead?

4.4 Apportionment of overhead – Apportionment of overhead is distribution of overheads to more than one cost centre on some equitable basis. When the indirect costs are common to different cost centres, these are to be apportioned to the cost centres on an equitable basis.

What are the basis of apportionment of overheads?

The total number of workers working in each department is taken as a basis for apportioning overhead expenses amongst departments. Where the expenditure depends more on the number of employees than on wages bill or number of labour hours, this method is used.

What is the basis of apportionment for sundries?

Explanation : Sundry overhead expenses may be apportioned in the ratio of labour hours. Sundry expenses are expenses that are small in amount and rare in occurrence. For these rare and insignificant expenses, a company might use a general ledger account entitled Sundry Expenses for these items.

What are the differences between allocation and apportionment?

The major difference between allocation and apportionment methods are that allocation is used when the overhead can be directly related to one department and cost center, and apportionment is used when the overhead arises from a number of departments.

What are the different types of allocation methods?

A few common cost allocation systems include absorption costing, variable costing, and activity-based cost allocation. Companies often select the best allocation system based on their manufacturing environments, such as job order or process production. Each costing method has its benefits and drawbacks from an accounting standpoint.

What is allocation methodology?

Definition of Allocation Method. Allocation Method means the method by which EHP and EPC shall identify the employees and former employees assigned to the EHP Group and the employees and former employees assigned to the EPC Group as set forth in Schedule A.

What is step down method allocation?

Step down method of cost allocation. Unlike direct method, the step method (also known as step down method) allocates the cost of a service department to other service departments as well as to operating departments.