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 do you mean by allocation and apportionment?

Allocation of cost means a process in which the entire amount of overhead is charged to a specific cost center. On the contrary, Apportionment of cost can be understood as the distribution of proportions of cost items to the cost unit, i.e. product or service or the cost center.

What is the difference between allocation absorption 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.

What is allocation and absorption?

Cost Apportionment: Cost allocation is also referred to as Cost apportionment. Cost apportionment means the allotment of proportions of items of cost of cost centers or cost units. Cost Absorption: Cost absorption means allotment of overhead expenses to cost units.

What are the 3 allocation methods?


There are three methods commonly used to allocate support costs: (1) the direct method; (2) the sequential (or step) method; and (3) the reciprocal method. Many instructors choose to defer coverage of the reciprocal method to cost accounting.

What is meant by absorption of overhead?

Overhead absorption is the amount of indirect costs assigned to cost objects. Indirect costs are costs that are not directly traceable to an activity or product. Cost objects are items for which costs are compiled, such as products, product lines, customers, retail stores, and distribution channels.

What is cost absorption?

What Is Absorbed Cost? Absorbed cost, also known as absorption cost, is a managerial accounting method that includes both the variable and fixed overhead costs of producing a particular product. Knowing the full cost of producing each unit enables manufacturers to price their products.

What is apportionment in costing?

Apportionment of Cost

It is the distribution of different cost items in proportions to the cost unit or cost centre on a suitable basis. Apportionment of cost refers to the distribution of various overhead items, in proportion, to the department on a logical basis.

What are the objectives of overhead apportionment and absorption?

Allocate or apportion the overheads among the various departments on suitable basis. The ultimate aim of Overhead Accounting is to absorb them in the product units produced by the firm. Thus, the indirect costs or overhead will have to be distributed over the final products so that the charge is complete.

What is the difference between allocation and appropriation?

Allocations are expenditure guidelines for a stated purpose or program. Appropriation Statutory authorization to spend a specific amount of money for a stated purpose. Appropriations are often subdivided into allocations in the appropriations bill. Funds may not be spent without an appropriation made by law.

What is company absorption?

Absorption is a type of merger in which one company absorbs the other company and is seen as one ‘existing company. Only one company survives absorption, while the others lose their identities. Typically, a company that acquires other companies (buyer) remains, whereas the bought company (seller) ceases to exist.

What are the 4 types of costing?

Types of Costs

  • 1) Fixed costs. Costs that are unaffected by the quantity of demand. …
  • 2) Variable costs. Costs associated with a company’s output level. …
  • 3) Operating costs. …
  • 4) Direct costs. …
  • 5) Indirect costs. …
  • 1) Standard Costing. …
  • 2) Activity-Based Costing. …
  • 3) Lean Accounting.

What is meant by apportionment of overheads?

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 the example of absorption?

An example of absorption is soaking up spilled milk with a paper towel. An example of absorption is when you memorize all 50 states by reading your text book and looking at a map. The definition of absorption is the state of becoming engrossed after totally concentrating on something.

What is cost absorption with example?

Examples include insurance and rent. Absorption costing is an inventory valuation, which means that it is not a regular expense but rather a capitalized cost that is tracked on the balance sheet until the product is sold.

What are the methods of absorption?

Methods of Overhead Absorption

  • Direct Material Cost Method. …
  • Direct Labour Cost Method. …
  • Prime Cost Method. …
  • Direct Labour Hour Method. …
  • Rate Per Unit of Production Method. …
  • Sales Price Method.

What is an example of apportionment?

The definition of apportion is to give out a certain amount of something to a number of people. If a country only had a certain amount of wheat and decided to ration it in a fair manner, that would be an example of apportion the wheat. To divide and distribute portions of a whole.

What is apportionment in simple terms?

: to divide and share out according to a plan especially : to make a proportionate division or distribution of Representatives are apportioned among the states.

What is an allocation in accounting?

Accounting – for Overheads – Allocation, Apportionment and …

What do you mean by allocation and apportionment of overhead?

Allocation of Overheads refers to the allocation of whole item of cost into Cost Centre and Cost Unit. 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.

What is apportionment in accounting?

An apportionment is the separation of revenues, expenses, or profits, which are then assigned to different accounts, departments, or subsidiaries.

What is allocation in taxation?

Comprehensive tax allocation is an analysis that identifies the effect of taxation on revenue-generating transactions during a non-standard reporting period.

What is allocation in cost accounting?

Cost allocation is the distribution of one cost across multiple entities, business units, or cost centers. An example is when health insurance premiums are paid by the main corporate office but allocated to different branches or departments.

What is apportionment of cost?

Cost apportionment is the allotment of proportions of items to cost centres or cost units on an equitable basis. The term refers to the allotment of expenses which cannot identify wholly with a particular department. Such expenses require division and apportionment over two or more cost centres or units.

What is an example of allocation?

noun. 1. Allocation is defined as the act of being portioned out for a certain reason. An example of allocation is when one refers to how the school fund-raising money is to be used for new computers.