Apportionment of overhead costs 

- Apportionment of overhead costs means to divide total cost of overhead among different departments or branches or cost centers of a company. 

- We need the steps of apportionment of overhead costs when there are many departments or cost centers of any company because when we know the overhead cost of each department, we can find the total cost of department. 

- With this, we can compare the revenue of each department with their total cost. • Then take decisions relating to particular department.

Steps Involved in Apportioning Overhead Costs

1st Step : To Classify the Cost Centers 

- Cost Centers should be classified into production department and service department.

2nd Step : To Divide Total Overhead on Different Basis of Apportionment

- One of best step to apportion overhead costs is to know the basis of apportionment of overhead expenses and then to use them. 

- All overhead will be allocated to the different department.

Example

 • Total rent is R5000.

- Area of production department is 

– A 100 Sq. foot. 

– B 200 Sq. foot. 

– C 700 Sq. foot. 

• Now total ratio of A : B : C is 1 : 2 : 7

• Total Rent Expense of – A Department will be = 5000 X 1 /10 = R 500 – B Department will be = 5000 X 2 / 10 = R 1000 – C Department will be = 5000 X 7 / 10 = R 3500 

So, Total overhead cost will be apportioned to different department on some basis. Basis of Rent apportionment is the area of department