DIFFERENCE BETWEEN ALLOCATION AND APPORTIONMENT OF OVERHEADS

The difference between Allocation and Apportionment of overheads is as follows:

ALLOCATION OF OVERHEADS

Allocation is the process of identification of overheads with cost centers. An expense which is directly identifiable with a specific cost centre is allocated to that centre. Thus it is allotment of a whole item of cost to a cost centre or cost unit.

ACCORDING TO CHARTERED INSTITUTE OF MANAGEMENT ACCOUNTANTS, LONDON

“Cost Allocation is the charging of discrete, identifiable items of cost to cost centers or cost units”.

EXAMPLE

The total overtime wages of workers of a department should be charged to that department. The electricity charges of a department if separate meters are there should be charged to that particular department only.

APPORTIONMENT OF OVERHEADS

Cost apportionment is the allotment of proportions of cost to cost centers or cost units. If a cost is incurred for two or more divisions or departments then it is to be apportioned to the different departments on the basis of benefit received by them. Apportionment is done in case of those overhead items which cannot be wholly allocated to a particular department. Common items of overheads are rent and rates, depreciation, repairs and maintenance, lighting, works manager’s salary etc.

ACCORDING TO CHARTERED INSTITUTE OF MANAGEMENT ACCOUNTANTS, LONDON

“Apportionment of overheads is that part of cost attribution which shares costs among two or more cost centers or cost units in proportion to the estimated benefit received, using a proxy”.

EXAMPLE

The salary paid to the works manager of the factory, factory rent, general manager’s salary etc. cannot be charged wholly to a particular department or cost centre, but will have to be charged to all departments or cost centers on an equitable basis.

BASIS OF DIFFERENCE	ALLOCATION OF OVERHEADS	APPORTIONMENT OF OVERHEADS
MEANING	Allocation is the process of identification of overheads with cost centers.	Apportionment is done in case of those overhead items which cannot be wholly allocated to a particular department.
NATURE OF COSTS	Assignment of particular cost to a particular department or cost center is called as allocation.	These costs are common to various departments and cannot be charged to a particular department or cost center.
PROPORTIONS OF COSTS	Allocation deals with whole items of costs.	Apportionment deals with proportions of items of costs.
BASIS FOR APPORTIONMENT OR ALLOCATION	No base is required for allocation of cost to a department, it is a direct process.	An equitable base is required for Apportionment of cost to the production or services department.
APPLIES	When the overhead costs are related to specific or single departments.	When the overhead costs are related to different departments.
EXAMPLES	Salary paid to the employees of the maintenance department, can be allocated to that department.	Wages paid to the head of the factory, rent of factory, electricity, etc. cannot be charged to a particular department, and then these can be apportioned amongst various departments.

CONCLUSION

Both allocation and apportionment of cost aim at identifying and assigning the cost to the cost center, but they are different. Cost Allocation is the process of assignment of cost item to the cost object, which is directly traceable. On the other hand, cost apportionment is for those indirect cost items, which are leftover in the process of cost allocation.

Also Study	Also Study	Also Study	Also Study
Cost Accounting	Scope of cost accounting	Elements of cost	Types of cost
Material control	Perpetual inventory system	Pricing of materials	Bin Card
Stores Ledger	Incentive plans	Overheads	Idle time
System of wage payment in cost accounting	Time rate vs piece rate wage system	Cost Center	Labour Turnover
Difference between management accounting and cost accounting	Allocation and apportionment of overheads	Allocation vs Apportionment of overheads	Absorption of overheads
Over absorption and under absorption of overheads	Activity based costing	Traditional costing vs ABC system	Reconciliation of accounts
Unit costing	Cost sheet format	Cost sheet vs production sheet	Job costing
Batch Costing	job costing vs batch costing	Contract costing	Job Costing vs Contract costing
Process Costing	Process costing vs job costing	Joint products	By Product
Equivalent production	Marginal costing	Application of marginal costing	Cost volume profit analysis
Tools and techniques of marginal costing	Budget	Break even point	Process of budgetary control
Advantages and limitations of budgetary control	Budgetary Control	Zero base budgeting	Standard Costing
Variance Analysis	Standard costing vs budgetary control	Management accounting vs cost accounting	Cost accounting vs financial accounting