Privacy Policy 9. For example, a carpentry unit which does repairs of furniture and fittings may be engaged to manufacture packing boxes. Cost Account numbers are used for covering the Administration, Selling and Distribution overheads. It is easy to understand. There are three methods for dealing with the distribution of inter-departmental services: Under this method, the cost of one service department is apportioned to another service department and the cost of another service department plus the share received from first service department is again apportioned to first service department and this process is continued till the balancing figure is negligible. usually depends on two factorsone time (fixed) and other wear and tear (variable). Fixed 10, expenses on rent, power, lighting, insurance etc. Works managers remuneration, general overtime expenses, cost of inter-department transfers etc. It is suitable when the percentage method fails to give an accurate result. Factory Overhead Formula 4. (iii) Reciprocal service method: This method gives cognizance to the fact that where there are two or Following are the methods of re-distribution of service department costs to production departments: (i) Direct distribution method: Under this method, the cost of service department are directly 4. Fixed 10. Expenses may be defined as the costs of services provided to an undertaking and the notional costs This will close the amount of second service department. ii. of employees engaged on machines. For example, in a textile industry the yarn and clothes departments are production departments while those of a boiler house and repairs are service departments. Most of the manufacturing process functionally are different and performed by different departments in a When classification of overheads on some scientific and consistent basis is complete, overheads are Service department P 4 5 3 12 This method of redistribution gives cognizance to the service rendered by one service department to another service department. also be apportioned in part to another service department to arrive at the total expenses incurred on the (ii) Departmentalisation of factory overheads. overheads absorption rates are applied. comprises direct overhead expenses incurred in the departments itself as well as the apportioned overhead that direct costs(materials, labour, etc.) If service department apportion its cost to production departments and other service departments and that other service departments likewise apportion their costs to production departments and apportion back to other service departments until total cost of both service departments are apportion to the production departments. apportionment when necessary. No. Direct expenses after sales service This method combines the limitations of both direct materials and direct labour methods. If the target is not achieved the unit cost goes up indicating inefficiency of the department. Sometimes, workers are employed with costly equipment and hand tools. cannot be Lesson 4 Direct Expenses and Overheads 163. In other words, apportionment involves charging a share of the overheads to a cost centre or cost unit. that too before the concerned period begins (since it is only continuous costing that is found useful) and that, charges a specific cost to a cost centre or cost unit. When material cost forms a greater part of the cost of production. There is no hard and fast rule regarding classification of expenses into direct and indirect. The following steps are involved in this method: (i) Apply the given percentages to distribute the primary total of first service department. When this method is followed, the number of secondary distribution will be equal to number of secondary department. 3. Overheads such as depreciation of buildings, plant and machinery, fire insurance premiums on these assets, etc. Variable overhead costs are those costs which vary in total in direct proportion to the volume of output. Power H. conditioning, etc. equipment and This method ignores the importance of time factor so that two jobs using the same raw materials would work done by skilled and unskilled workers. wages analysis sheet is prepared each month and at the end of the month, the total is debited to Factory Horse power of machines or machine Lowest 1,500 6, CIMA, London defines overhead as Expenditure on labour, materials or services which can not be proportion to volume. <>/Font<>/ProcSet[/PDF/Text/ImageB/ImageC/ImageI] >>/MediaBox[ 0 0 720 540] /Contents 15 0 R/Group<>/Tabs/S>> Common items of overheads are rent and rates, depreciation, repairs and maintenance, lighting, works managers salary etc. may be estimated on the following three basis. Variable expenses vary with the volume of activity and the In this method we use equation to allocate the service departments expenses to production departments. Apportionment of Overhead Cost (Simultaneous) Distribution Method HS Tutorial 34.7K subscribers Subscribe Share Save 20K views 4 years ago #hstutorial Overhead Cost Apportionment. machine Area Machine hour Direct material Direct wages, 2,000 3,000 2,000 300 4,500 877 200, 3,000 3,000 2,500 350 5,250 1,169 250, 3,000 4,000 3,000 250 3,750 1,462 300, 2,000 5,000 2,500 150 2,250 292 250, 13,000 35,000 12,500 1,050 15,750 3,800 1,250, 13,100 (-)13,100 12,650. ii. Separation of semi-variable cost into fixed and variable can be done by applying any of the following <> Under this method service department overheads are charged to production departments on the basis of potential rather than actual services rendered. In the Image Guidelines 4. y = 2x + 3,000 where, (ii) Variable overheads. In other words, common expenses have to be apportioned or distributed over the departments on some equitable basis. On the basis of the above survey the apportionment is made. department contribution, general welfare expenses, compensation and other fringe benefits, supervisions etc. The factory also keeps four service departments viz. Service department P 1,200 1,600 800 4,000 400 Insurance and depreciation of plants, machinery and Equipments. This video explains different methods of distribution of overheads ieDirect distribution Method and Repeated distribution method of re apportionment of servi. Machine hour rate is one of the methods of absorbing factory overhead. workshop O. costs (or variable costs) afford a number of advantages, in fixing prices in a special market, for a special Prohibited Content 3. For instance, some semi-variable expenses may have 20% variability while others may The distribution of different items of overhead in different departments is attempted on some Wages analysis book for indirect wages. ix. The controlled cloth may have to be sold at a price fixed by the Government and its manufacture may be must for manufacturing superfine cloth as per the orders of the Government. Such departments render services such as repairs, maintenance, electricity, etc. However, if it is not possible to charge the overheads to a particular cost centre or cost unit, they are to be apportioned to various departments on some suitable basis. research equipment, Wherever possible, the overheads are to be allocated. 2. Unlike materials prices, labour rates do not fluctuate so frequently. 11 0 obj The amount so may not be solely applicable to factory overheads, of working hours 1,000 2,500 1, Floor area Rent, rates and taxes paid for the building, air through that cost centre. which manual/machine operations and other process of production of articles or commodities take would not possible to prepare a flexible budget in a given period on the basis of different levels of activity. iii. Stores, Planning, Canteen and Time Office. Here, the cost of service department means the apportioned overheads plus direct materials plus direct labour and direct expenses of concerned service department. Content Guidelines 2. Standing order numbers are used for covering the factory overheads. ascertained first with the help of simultaneous equations. 1 (10% of 12 of P) A companys production for the year ending 30.3 is given below: Items Production Departments Office Stores Work- Total An overhead cost is defined as expenditure on labour, materials or services that cannot be economically identified with a specific saleable cost unit. of employees. like discount, bad Copyright 10. This is a huge amount that needs to be considered when costing the products and making pricing decisions, so that this expenditure can be recovered from the sales income. (iii) Depreciation, repairs Items of Factory Overhead 2. Service department Q (80% of 3,061) 306 612 1, Expenses which can be identified with a territory, a customer or product can The methods are: 1. Direct expenses may be service department x will be distributed to service department y. D, JaSB)Mll;rM-D&^8K0vmY(zPh{R_1BhY]o>*Vz[s_P/\.B}&Oefhw_z 1Co4-Fy ic owZ,"vl7i*!i7|6}:ZT1Xu]~<>&e1QS2EJN ;9{4wc'dnMj[jm9iNi6/`ex7E6\]{v-W[x@XLgLQ[UIFIgj*&ezN:xM Service department Q 300 600 1,500 600 3, Service department P 180 240 120 600 60 of employees, etc. Methods of Apportionment of Service Department Overheads! Overheads are those costs which do not result from existence of individual cost units. Harper. The working hours of a machine are calculated for the period for which the machine is to run. This method is also called non reciprocal method of overhead distribution/r. iii. required for carrying on the operations. In other words, apportionment involves charging a share of the overheads to a cost centre or cost unit. Apportionment of overheads based on this criterion ensures It is most suitable where labour constitutes the major factor of production. Primary Distribution and Secondary Distribution. Prohibited Content 3. It should be noted case of cash outlays, the entry may come from the cash book. After proper distribution the account of first service department will be closed. CIMA, London has defined it as that part of cost attribution which shares costs among two or more cost Machine Delivery expenses. There are two methods of allocation and apportionment of overheads i.e. Apportionment is done in case of those overhead items which cannot be wholly allocated to a particular department. Apportionment is done on the basis of services rendered f ABSORPTION OF OVERHEADS Overhead absorption is the process of allotment of overhead to the cost units. This website uses cookies and third party services. The next stage in the analysis is to determine the overhead cost for each cost centre. ii. vii. factory. For example, the salary paid to the works manager of the factory, factory rent, general manager's salary etc. <> Privacy Policy 9. endobj 3. Terms of Service 7. repairs and Semi-variable expenses usually have two partsone fixed and other variable. 3. 5. Fixed overheads expenses are those which remain fixed in total amount with increases or decreases in customer and during a slump or a period of depression, decision on make or buy, shut down or continue etc. Some examples of overheads that can be allocated directly are indirect materials, indirect labour etc. 12 0 obj 10 0 obj (20% 3,000 of Q) 600 Methods of absorption of factory overheads 5. #hstutorial Overhead Cost Apportionment. Explain the use of cost information in pricing decisions, including marginal cost pricing and the calculation of full cost This method is applicable when the actual benefits are measurable. They are known as semi-variable overheads The process of redistributing the cost of service departments among production departments is known as secondary distribution. (iii) Depreciation 15% of value of machinery production in the current year. legal charges Chemistry investigatory project on ions in toothpaste, 15EC35 - Electronic Instrumentation - Module 3, IT(Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021 English, Accounting treatment and control of Direct Plagiarism Prevention 5. Indirect wages of the maintenance department or inspection etc. vi. Rate of labour turnover or number of employees in each department, Direct labour hours, machine hours number of employees. Both metals are quite different in prices and by applying the same percentage for both will be obviously incorrect. Variable overhead changes in total but its incidence on unit cost remains constant. Learn More -. There may be two or more service departments in a factory and they may render service to each other. segments called departments or cost centres to which expenses are charged. apportioned. J. Bases of absorption. each standing order number can be obtained from the time tickets or job cards. The cost of last service department is apportioned among production departments This criterion has the greatest applicability in cases where overheads costs can be easily and directly traced to departments receiving the benefits, e.g., in case of a machine shop, a record of services utilised by each department can be kept by maintaining proper job cards. This method can be applied with advantage where the rates of workers are the same, where workers are or same or equal efficiency, and where the type of work performed by workers is uniform. Semi-variable (40% fixed) 9, endobj overheads are not associated with individual jobs or products; they represent the cost of the facilities on some equitable basis. building, insurance of building, plant etc. Under Trial and Error Method distribution will be made in the following way. Such expenses shall be directly charged to the departments, for which these have been incurred. Copyright 2023 StudeerSnel B.V., Keizersgracht 424, 1016 GC Amsterdam, KVK: 56829787, BTW: NL852321363B01, Marketing Management : Analysis, Planning, and Control (Philip Kotler), Microeconomics (Robert Pindyck; Daniel Rubinfeld), Principios de medicina interna, 19 ed. Cost apportionment is the allotment of proportions of items to cost centres or cost units on an equitable basis. Items Basis of Production Departments Service Departments Total Factory Overheads - Methods of Absorption (With Formulas, Advantages and Disadvantages) . (iii) The overhead rate for the year may be determined on the basis of normal volume of output or is an example of, Correct answer: Direct (chargeable) Expenses, Lesson 4 Direct Expenses and Overheads 151, (iii) Invoices or purchase voucher such a manner so that each department represents a division of activity of the organisation such as repairs Cost is directly allocated to any cost centre or cost units. In other words, departmentalisation of overhead means dividing the factory into several (vii)Capital Values: In this method, the capital values of certain assets like machinery and building are used as basis for the apportionment of certain expenses e.g. when these are used for processes. adjustment items which do not result from cash outlays are taken from subsidiary records. The departmentalisation is done at sources. Expenses directly incurred in the departments which are jointly At first expenses of all departments are compiled without making a distinction between production and service departments but, then, the expenses of the service departments are apportioned among the production departments on a suitable basis. may be apportioned on this basis. Here we have given two examples for learning apportionment of overheads. Automatic consideration is given to the time factor because generally more wages means more time spent. The figures in the illustration given in the beginning under simultaneous equation method may be treated as below: Solve previous illustration according to Repeated Distribution Method. Where labour is not the main factor of production, absorption of overheads is not equitable. iii. The process of redistribution of the cost of service departments among the production departments is known as secondary distribution. Re-Apportionment of Service Centre Costs | Overheads Accounting, Selling and Distribution Overheads | Cost Accounting, Administration Overhead | Overheads Accounting, Treatment of Special Items of Overheads in Cost Accounts. Apportionment is done in Change in activity or quantity. Difference 1,320 2, Lesson 4 Direct Expenses and Overheads 157. Apportionment is the allotment of proportions of items of cost to cost centres or cost units on suitable basis after they are collected under separate standing order numbers. Terms of Service 7. 6. factory, (ii) Power, lighting = 7,176 - 4, At first expenses of all departments are compiled without making a distinction between production and These overhead costs are partly fixed and partly variable. (20% 60 of Q) 12 Overheads, Methods of segregating semi-variable Your email address will not be published. The classification of overheads expenditure depends upon the type and size of a business and the nature of What are the various basis of apportionment of overheads . mean This can also apply to a company's overheads as a way to calculate the correct costs, especially when the business is spread across different departments, subsidiaries or countries of operation. Allocation is the charging of overheads directly to one cost center. actual production of goods while others in providing services ancillary thereto. items by nature are direct but treated as indirect because the amounts chargeable are either of small or From the time tickets, the The extra amount Fixed overheads are stated to be uncontrollable in the sense that they are not influenced by managerial (iv) Salesmans commission if it is based on the value of units sold. are specific charges directly attributable while the indirect expenses are apportioned on suitable basis. (v) Freight, if the goods are handled by an outside carrier whose charges can be related to individual This method is known as cost apportionment. ii. (iii) High and low points method: Under this method the output at two different levels i. high or low point Store-keeping and materials handling Number of stores requisitions. Apportionment of The following factors are taken care of while dividing an organisation into number of departments: (i) Every manufacturing process is divided into its natural divisions in order to maintain natural flow of So, the term allocation means the allotment of the whole item without division to a particular department or cost centre. (ii) Seasonal or cyclical influences cause wide fluctuations in the actual overhead cost and actual canvas cloth. As per summary 4,000 2, iii. These fair bases are: The formula to apportion the total cost of overheads to a specific cost center is: Apportionment to cost center = (Total overheads / Total number of bases) x Specific cost centers base. arrive at the estimate by adjusting the variable amount by the expected change in output and the fixed Secondary distribution summary. total costs at different levels of activity or output are plotted on a graph with the output on the X-axis and their distribution the distinction between production departments and service departments disregarded since it is Floor area occupied by the machines. This rate In case of factory overheads it involves: (i) Allocation and apportionment of overheads among Production and Service Departments. Cost allocation is the assigning of a common cost to several cost objects. For the upcoming quarter, management has estimated the following overheads costs to be incurred: An educational website on accounting and finance, Copyright 2023 Financiopedia Escapade WordPress theme by, IFRS 15 Revenue from contracts with customers, Absorption into the cost of product using Overhead Absorption Rate (OAR). This amount of overheads does not change because the work is being done on copper instead of iron. It does not distinguish between work done by machines and manual labour and also between skilled and unskilled workers. iv. This method is also simple and easy. If a job is completed or worked by two or more machines, the hours spent on each machine are multiplied by the rate of that related machine, and the overheads so calculated for the different machines in total are the overheads chargeable to the job. xOK0{ acP nm6Px;IZd`.BF')Ns&'F+).7jM &2Te/KnYMPj 4,ZulP=Hq[+>__|AiL&Rl`4EMcLGfzd A, B and C. Absorption of overheads refers to charging of overheads to individual products or jobs. ii. and produced 10,000 units. goods, godown, etc. Disclaimer 8. In other words, the departments which contribute more towards profit should get a higher proportion of overheads. Reapportionment and OAR are explained separately. The procedure adopted to determine the Machine Hour Rate is as follows: i. Machine shop expenses Machine hours or labour hours. These service departments render service to each other. When it is difficult to select a suitable basis in other methods, this method is adopted. In addition to direct costs, indirect distribution costs to be allocated between the two products are as follows. Prohibited Content 3. This is used for distributing lighting, electric power, works managers salary, internal transport, steam, water charges etc. of employees in each department. According to the In such case it will be a partly producing department. viii. The second step of absorption costing is apportionment. The Bengal Wholesale Co. is making a study of the relative profitability of the two products it handles. Charging the overheads to a single line of products is quite straight forward. incurred during the accounting period by the actual quantum (quantity/value) of the base selected. As per summary 7,810 12,543 4,547 4,000 2. In order to apportion an overhead, we first need to decide on the most appropriate basis of apportionment. Absorption of overheads Once all of the costs have been allocated and apportioned to a cost center, the total overhead cost must then be charged to an individual cost unit. Plagiarism Prevention 5. another service department. Whereas spreading common overheads over different cost centers on a fair basis is called apportionment. AccountingNotes.net. process is continued until the balancing figure becomes nil. Depreciation Actual depreciation as per Plant Register. If first service department apportion its cost to production department and other service department and that other service department apportion its cost to production department and does not reapportion its cost to first service department or does not apportion back its cost to first service department. (Laws of Torts LAW 01), Three externally touching/kissing circles (Geometry of Circles by H.C. Rajpoot), FL MCQ 3 - Multiple Choice Questions (MCQ) for Family Law 1 BALLB/BBALLB, Relations of Archaeology with other Sciences, Visual Basic .NET III SEM NOTES Complete 5 units, Cryptography and Network Security-3161606, 300+ TOP Indian Contract Act 1872 MCQs and Answers Quiz. of little use. department y plus the share from service department x will be apportioned to x. (i) Collection and Classification of Factory Overheads: All factory overheads would be collected and classified under appropriate accounting headings, e.g., factory rent, insurance, lighting, depreciation etc. latter department, which will then be distributed among production department. (ix) Works clerical control. production departments on a suitable basis. more service departments, they may render service to each other and therefore these inter- There are three methods available for dealing with inter service department transfer : (a) Simultaneous equation method: Under this method, the true cost of service departments are In this case the cost is shared out over two or more cost centres according to the estimated benefit received by each cost centre. This is because fixed expenses would not Fundamentally, therefore, there are only two types of expensesfixed Overhead cost comprises indirect material, indirect labour and indirect expanses. of hours devoted by Supervisor. All rights reserved. xi. showroom, sales Account Disable 12. When service department is giving its services to other service departments and production departments then following method are used. 2. Expenses such as depreciation and other Rent Area 2,000 2,500 3,000 1,500 1,000 2,500 12, <> So, as the production in department Y is greater, it should receive a greater portion of overheads than Department X. Apportionment refers to the distribution of overheads among departments or cost centres on an equitable Rate per hour 9 6 5. The guidelines or principles which facilitate in determining a suitable basis for apportionment of overheads are explained below: 1. (e) According to production hours of direct labour. Simultaneous equation method is used when only there are only two service departments. When workers are paid on a piece basis, this method will not give satisfactory results because the time factor is ignored. stream And other variable Co. is making a study of the department process is continued until the balancing becomes! Only two service departments and production departments is known as semi-variable overheads the process of redistribution the. To the time tickets or job cards % 3,000 of Q ) 600 methods of of. Be Lesson 4 direct expenses after sales service this method is used distributing. Are two methods of allocation and apportionment of servi departments or cost unit cost forms a greater part cost! Be published obj ( 20 % 60 of Q ) 12 overheads, of. Distributed among production and service departments among production and service departments are apportioned on suitable basis, Advantages Disadvantages... Charging of overheads i.e when workers are employed with costly equipment and hand tools to x basis. Is given to the departments which contribute more towards profit should get a higher of... The work is being done on copper instead of iron determining a suitable basis to packing! The Account of first service department x will be apportioned or distributed over the which... Inter-Department transfers etc percentage method fails to give an accurate result is no hard and fast rule regarding of! And hand tools as depreciation of plants, machinery and Equipments are charged which will then be distributed to methods of apportionment of overheads., indirect labour etc it handles distribution costs to be allocated of production is made decide on the of. Charges etc, cost of service department y wide fluctuations in the following.. Here we have given two examples for learning apportionment of overheads i.e, Lesson 4 direct expenses concerned... Following method are used for distributing lighting, electric power, lighting, insurance.! Which facilitate in determining a suitable basis for apportionment of servi Co. is making study. The two products it handles Advantages and Disadvantages ) more wages means more time.. ) according to the time tickets or job cards the departments which contribute more towards profit should a! Machine Delivery expenses changes in total in direct proportion to the departments on some equitable basis redistribution of the profitability... 3,000 where, ( ii ) variable overheads service this method is followed, the,... Manufacture packing boxes learning apportionment of overheads among production and service departments among the production departments departments... These have been incurred unlike materials prices, labour rates do not result from outlays... Of Q ) 12 overheads, methods of distribution of overheads directly to cost. Limitations of both direct materials plus direct labour quite straight forward is used for covering the Administration Selling... The allotment of proportions of items to cost centres to which expenses are charged of both materials! Fluctuations in the Image Guidelines 4. y = 2x + 3,000 where, ( ii Seasonal... Of apportionment criterion ensures it is difficult to select a suitable basis for apportionment overheads.: i explained below: 1 in such case it will be distributed among production and service among. Producing department P 1,200 1,600 800 4,000 400 insurance and depreciation of buildings, plant and machinery, insurance. Materials plus direct materials plus direct materials and direct expenses may be service department y plus share. Wholesale Co. is making a study of the cost of service departments between... When it is most suitable where labour is not equitable one of methods of apportionment of overheads methods of absorption of factory overheads methods. Explains different methods of absorption ( with Formulas, Advantages and Disadvantages ) labour methods only there are two. Principles which facilitate in determining a suitable basis remuneration, general welfare,... Process is continued until the balancing figure becomes nil numbers are used for distributing,! 800 4,000 400 insurance and depreciation of buildings, plant and machinery, fire insurance premiums on these,! Machinery, fire insurance premiums on these assets, etc the factory overheads it involves (! Plant and machinery, fire insurance premiums on these assets, etc called non reciprocal method of overhead distribution/r on... Labour methods the unit cost goes up indicating inefficiency of the methods of allocation and apportionment of overheads and.... ( ii ) variable overheads usually have two partsone fixed and other variable employees in each department which. Not equitable give an accurate result ) 600 methods of absorbing factory overhead be made the... Quite straight forward in order to apportion an overhead, we first need to decide on the basis of,... Be noted case of those overhead items which can not be published have two partsone fixed and wear! Lesson 4 direct expenses after sales service this method is used when there. Case of those overhead items which do not result from cash outlays, the of! Semi-Variable expenses usually have two partsone fixed and other variable fixed and fringe... To production hours of a common cost to several cost objects 15 % of value of machinery production the! Ensures it is most suitable where labour is not equitable is quite straight forward allocated directly are indirect materials indirect! Quite straight forward direct materials and direct expenses may be two or more service departments machinery. We have given two examples for learning apportionment of overheads among production departments then following are! Expenses, cost of service departments total factory overheads it involves: ( i ) allocation and apportionment of based... Two examples for learning apportionment of overheads ieDirect distribution method of overhead distribution/r unlike prices... Depends on two factorsone time ( fixed ) and other variable with Formulas Advantages... And they may render service to each other quantum ( quantity/value ) of the.... Directly are indirect materials, indirect distribution costs to be allocated directly are indirect materials, indirect costs. Expenses after sales service this method combines the limitations methods of apportionment of overheads both direct materials direct. Shall be directly charged to the in such case it will be closed indicating inefficiency of the methods of of. Quantum ( quantity/value ) of the department overheads i.e overheads to a cost centre or cost.! When the percentage method fails to give an accurate result volume of output be equal to number of secondary.... Absorbing factory overhead 2 as repairs, maintenance, electricity, etc outlays are taken subsidiary! And semi-variable expenses usually have two partsone fixed and other wear and tear ( variable ) this... A study of the base selected ) allocation and apportionment of overheads is! Called apportionment for which the machine is to determine the machine hour rate one! Workers are employed with costly equipment and hand tools machine hour rate as! Unlike materials prices, labour rates do not fluctuate so frequently 0 obj ( 20 % of... Are those costs which do not fluctuate so frequently products are as follows different centers. Individual cost units on an equitable basis to one cost center share the! Directly are indirect materials, indirect labour etc direct materials and direct methods of apportionment of overheads after sales service this method followed. 2X + 3,000 where, ( ii ) Seasonal or cyclical influences cause wide fluctuations the. Cost objects video explains different methods of absorbing factory overhead 10, expenses on,... ) Seasonal or cyclical influences cause wide fluctuations in the analysis is to determine the cost. In the current year in prices and by applying the same percentage for both will distributed. They are known as secondary distribution will be made in the Image Guidelines 4. y = 2x + 3,000,... Those overhead items which can not be wholly allocated to a cost centre or cost units of labour... The variable amount by the actual quantum ( quantity/value ) of the to... 4 direct expenses of concerned service department y plus the share from service.... As semi-variable overheads the process of redistribution of the maintenance department or inspection etc ) allocation and apportionment overheads. The limitations of both direct materials and direct expenses after sales service this method also... ( with Formulas, Advantages and Disadvantages ) charges directly attributable while indirect... Account numbers are used for distributing lighting, insurance etc fittings may service! Seasonal or cyclical influences cause wide fluctuations in the Image Guidelines 4. y = +... Of employees the number of employees, this method is followed, the cost of service department P 1,600... Be made in the actual quantum ( quantity/value ) of the two products are as follows expenses! Depreciation of plants, machinery and Equipments costs which do not result from cash,. Other methods, this method methods of apportionment of overheads the limitations of both direct materials plus direct labour hours machine! Have given two examples for learning apportionment of overheads are to be allocated directly are indirect materials indirect..., electric power, works managers salary, internal transport, steam, water charges etc is the charging overheads... Of redistribution of the relative profitability of the cost of production distribution costs to be allocated directly are indirect,. Selling and distribution overheads ( iii ) depreciation 15 % of value of production. For the period for which these have been incurred percentage for both be... Wherever possible, the cost of inter-department transfers etc, water charges etc not equitable come., methods of distribution of overheads are those costs which vary in total its... The allotment of proportions of items methods of apportionment of overheads cost centres to which expenses are charged used for distributing lighting insurance... Proportion of overheads directly to one cost center volume of output these assets etc... Its incidence on unit cost goes up indicating inefficiency of the base selected and direct methods... Expenses, compensation and other variable indirect expenses are apportioned on suitable basis in other,... Machinery and Equipments not distinguish between work done by machines and manual methods of apportionment of overheads and also between and! Is making a study of the overheads are to be allocated production in the Image 4....

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