In this, it allocates to the particular cost centre in which they relate. Apportionment of Overheads refers to the allocation of proportion of item to the Cost Centre and Cost Unit among different departments. • Cost apportionment occurs when a specific cost cannot be directly identified with one specific cost center.

For example, a carpentry unit which does repairs of furniture and fittings may be engaged to manufacture packing boxes. • Cost allocation occurs when overheads and expenses are charged directly to the cost center. Allocation is a process a state tax department uses to assign all of a certain type of taxable income to one or more specific states.

Allocation and Apportionment of Overheads, Cost Accounting Notes B.Com 4th Sem CBCS Pattern

Each state publishes its own rules for determining what types of income qualify as business or non-business income. 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. In order to get reliable information about financial results of different activities of the company, it is necessary to define income and expenses related to each of them objectively and as precisely as possible. From all possible classifications of expenses for an estimation of profitability of separate business directions (as well as separate goods and services) classification of expenses on direct and indirect is actual. In allocation, the entire amount of the cost will be allocated to one department, and in apportionment proportions of the costs will be divided among their respective cost centers.

What is an example of allocation and apportionment of overheads?

Overheads are directly allocated to various departments on the basis of expenses for each department respectively. Examples are: overtime premium of workers engaged in a particular department, power (when separate meters are available), jobbing repairs etc.

An expense which is directly identifiable with a specific cost centre is allocated to that centre. So it is the allotment of whole item of cost to a cost centre or cost unit or refers to the charging of expenses which can be identified wholly with a particular department. For example, the whole of overtime wages paid to the workers relating to a particular department should be charged to that department. So, the term allocation means the allotment of the whole item without division to a particular department or cost centre.


Any revenue derived from intangible property – such as software design, graphic arts, or other creative works – that is a necessary part of the company’s daily operation is liable to apportionment taxation. Certain parameters must be met to allocate expenses to a certain cost center. Allocation is more appropriate when a specific cost is attributed to a single entity, while apportionment is more appropriate when a resource is shared among multiple entities. The Huntington-Hill Method is a modified version of the Webster method, but it uses a slightly different rounding method. While Webster’s method rounds at 0.5, the Huntington-Hill method rounds at the geometric mean, which is described below. If a state’s quotient is higher than its geometric mean, it will be allocated an additional seat.

Following each decennial census, the seats of the House of Representatives are reapportioned among the states according to their population. There are several different methods of apportionment, listed below, each of which allocates seats in a slightly different way. Use Apportionment and Allocation of Income (Sch R) to help you calculate nonbusiness income. For each allocation source, you can define an allocation level, a validity period and a variant as group identifier.

How do you apportion allocate and overhead?

While apportionment involves the use of mathematical formulas to determine what proportion of income is taxable in each state, allocation assigns all income to one state or divides it evenly between multiple states. Apportionment generally refers to the division of business income among states by the use of an apportionment formula. A trade or business with business income attributable to sources both inside and outside of California are required to apportion such income. For example, the cost of direct material is paid directly to the cost center of production, and the cost of an air conditioner used by a given department is charged specifically to that department. Cost Allocation, as the name suggest, is the direct allotment of cost to the traceable cost object.

  • For example, a carpentry unit which does repairs of furniture and fittings may be engaged to manufacture packing boxes.
  • • Cost allocation occurs when overheads and expenses are charged directly to the cost center.
  • Overhead absorption is the amount of indirect costs assigned to cost objects.
  • The term allocation of cost is concerned with the complete cost items, whereas the apportionment of the cost is all about the proportion of cost items.
  • A department may be either production department or service department depending upon the nature and function.

Allocation uses a formula to determine the average level of business revenue a company generates by operating within a given state. Salaries, gross sales, and other assets used to generate business-related income are all elements of the formula. After the state populations are divided by the divisor, those with quotients that have fractions of 0.5 or above are awarded an extra seat.

Allocation vs Apportionment

Ask Any Difference is made to provide differences and comparisons of terms, products and services. As a result, the manager’s compensation will be charged to all departments based on the percentage of time he has spent in each. Using the manager’s pay as an example, such an expenditure would have to be allocated based https://accounting-services.net/return-on-equity/ on a fair set of criteria. This may be anything like the manager’s time spent in each department as a proportion of his total time. Another example is that if one department uses an air conditioning unit independently, the entire cost of operating the air conditioning system will be given to that department.

What is the difference between allocation of overhead and apportionment?

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. Assignment of particular cost to a particular department or cost center is called as allocation.

Because each state applies its own methods to calculate the taxes imposed on businesses that operate across state lines, the confusion can cause companies to underpay or overpay their tax bills. The law defines the difference between business and non-business income and specifies Difference Between Allocation & Apportionment which income sources are to be taxed under allocation and which under apportionment. Allocation and apportionment are methods that are used to divide up costs among various cost centers depending on which department or cost center each cost or portions of each cost belong.

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