Service department Q (80% of 3,061) 306 612 1, Ability to pay: According to this method, overheads should be apportioned on the basis of the sales ability or income generating ability of respective departments. On the basis of the above survey the apportionment is made. According to the iv. An. Sometimes, the basis will be the Ability to pay method, i.e., ability of the department to bear such share of items of overheads. volume of output. Under this method, service departments costs are apportioned to production departments only ignoring service rendered by one service department to another. <> Allocation means the allotment of whole items of cost to cost centres or cost units. Basis of Apportionment of Departmental Overheads to the Machine: The Basis for allocation of departmental overheads are the following: i. In that situation it is logical to give weight to inter-departmental services while distributing the expenses of service departments. distribution, Methods Of Absorbing Production After that the total costs are distributed among production departments on the basis of given percentages. Comment *document.getElementById("comment").setAttribute( "id", "a6595ff82cb3bd7d6a7d2543d58a31a2" );document.getElementById("a8d4f85434").setAttribute( "id", "comment" ); Save my name, email, and website in this browser for the next time I comment. This process of apportionment is also known as departmentalisation of overhead. Cost apportionment is necessary when it is not possible to allocate a cost to a specific cost centre. i. expenses like After completing this chapter, one should be able to : 1. ii. once that level is exceeded, they vary without having direct relationship with volume changes. of employees, etc. ii. In April 2013, the output is likely to increase by 500 units. Direct Wages 20,000 25,000 30,000 - - - 75, The following problem will exemplify the method. The following steps are involved in this method: (i) Apply the given percentages to distribute the primary total of first service department. capacity of the business. Machinery 300 350 250 - - 150 1, 1. Expenses directly incurred in the departments which are jointly (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. The cost of service department which renders service to the largest number of other departments is distributed first. Whereas spreading common overheads over different cost centers on a fair basis is called apportionment. Total 9,500 15,000 7, depreciation, telephone charges, repair and maintenance of buildings, machines and equipment etc. service departments x and y. 15 0 obj 400 (10% of 4,000 of P) ii. The reciprocal service to C is ignored as, by now, it is not material. Similarly Complete the overhead analysis sheet below and reapportion theservice department overheads to the production departments using thereciprocal method. 2 0 obj The items of factory overhead are as follows: 2. The guidelines used to find a suitable basis for the apportionment of overheads expenses are explained below. variable expenses. expenses to be split up into two parts. departmental services are to be given due weight in distributing the expenses of service Factory Overheads - Methods of Absorption (With Formulas, Advantages and Disadvantages) . though it is a service department. endstream Disclaimer 9. It is also possible that expenses of one service department may Apportionment means allotment of proportion of items of cost to cost centres or cost units. costs (or variable costs) afford a number of advantages, in fixing prices in a special market, for a special For example, a company may provide for its own buses for transporting workers to and from the factory. Service departments are auxiliary and are those departments which are not directly engaged in production. This is also known as departmentalization or primary distribution of overheads. In other words, common expenses have to be apportioned or distributed over the departments on some equitable basis. In a factory a product does not pass through Service department (S), but service department renders service to production departments for carrying on production function. basis. The incidence of fixed overhead There are certain overheads which can be directly estimated for different departments. The overhead rate of expenses for absorbing them to production Building service department Relative area of each department. It does not require any special accounting records to be kept for its operation. benefits likely to be received). 10p - 2q = 40,000 .(v) total costs at different levels of activity or output are plotted on a graph with the output on the X-axis and their 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. goods, godown, etc. proportion to volume. Fixed 10, 3. Distribution of factory overheads involves three stages: (i) Collection and classification of factory overheads. Services used by other service departments are ignored. etc. Under this method, expenses of one service department (generally the one which received the least service and gives the maximum service from and to other service departments) are apportioned to all other departments in the proportion of benefit derived by them; then expenses of the next service department are apportioned to the remaining departments and so on till expenses of all service departments are dealt with. equipments. endobj 3. endobj = 3. services, as cannot be conveniently charged direct to specific cost centres or cost units. When it is difficult to select a suitable basis in other methods, this method is adopted. medical, Apportionment of Overhead Expenses: Definition Apportionment is the process of distributing overhead items to cost centers on a fair and reasonable basis . The amount so Uploader Agreement. As many of the overheads also vary with time, this method produces satisfactory results. Lighting No bulbs used for lighting by the machine. Prohibited Content 3. <> Estimated or actual time spent. When the same quantity of materials is used for all units. overheads are not associated with individual jobs or products; they represent the cost of the facilities Here we have given two examples for learning apportionment of overheads. is an example of, Correct answer: Direct (chargeable) Expenses, Lesson 4 Direct Expenses and Overheads 151, (iii) Invoices or purchase voucher <> From the following information prepare a manufacturing expense budget and calculate overhead recovery rates for the two production departments as percentages of direct labour : Depreciation calculated as a% of original cost: You are supplied with the following information and required to work out the production hour rate of recovery of overhead for departments A, B and C: Before uploading and sharing your knowledge on this site, please read the following pages: 1. The objective of overhead absorption process is to include in the total cost of a product an appropriate share of a firm's total overheads. Secondary Distribution. 2. (iii) Actual cost is generally used for comparison with the predetermined figures for the purpose of An analytical study thus can make it possible for all semi-variable (iii) Ascertaining Marginal Cost: Decision Making: A number of decisions of management depend upon a Following are the methods of re-distribution of service department costs to production departments: A companys production for the year ending 30.3.2013 is given below: Depreciation 15% of value of machinery. repairs and Following points should be considered for primary distribution of items of overheads: (i) Basis for distribution should be equitable and practicable; (ii) Method adopted for distribution should not be time-consuming; (iii) Overhead expenses should be distributed among different departments on the basis of benefits received by departments; For the purpose of primary distribution, a departmental distribution summary is prepared in the following way: Basis of Apportionment of Factory Overhead: 1. department contribution, general welfare expenses, compensation and other fringe benefits, supervisions etc. Some expenses such as power, lighting, heating, rent, etc. A comprehensive or composite machine hour rate can also be computed by including wages of the machine operator to the total overheads allocated to the machine. worked out as follows: Output Indirect maintenance of Disclaimer 8. Indirect materials originate in store requisitions. 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 the product or service rendered. and other fringe benefits, supervisions etc. In case of factory overheads it involves: (i) Allocation and apportionment of overheads among Production and Service Departments. Group insurance, canteen expenses, E.S.I. Highest 2,820 8, (e) According to production hours of direct labour. In this method we use equation to allocate the service departments expenses to production departments. Rate per hour 9 6 5. Prohibited Content 3. Light Area 200 250 300 150 100 250 1, 12,877 15,519 15,762 12,650 13,100 12,442 82, Allocation is the charging of overheads directly to one cost center. The business incurs expenditure on overheads (like those mentioned above) because it is crucial for the production to take place. This is achieved through the process of allocation and apportionment. It is to be carefully noted that at the time of making primary distribution, the distinction between production and service departments is ignored. 5 Absorption of overheads. Learn about 1. Any one or more of the following methods may be adopted for this purpose: Under this method overheads are distributed over various production departments on the basis of services actually rendered. The cost of last service department is apportioned among production departments 4. But there are some service departments which occasionally engaged in production apart from rendering services. (vii) Watch and ward In this case the cost is shared out over two or more cost centres according to the estimated benefit received by each cost centre. Because 2 nd method is same as the concept of 3 rd method. expenses pertaining to a cost centre are ultimately to be charged to the products, jobs etc. (i) Rent 12, If the overheads of a machine cost centre are divided by the effective machine hours, we get machine hour rate pertaining to the machine or the group of machines. xSKk08 Privacy Policy 9. be considered as direct expenses. charged wholly to a particular department or cost centre, but will have to be charged to all departments or This costing method is used to allocate, apportion, reapportion and finally absorb the overheads in the cost of the product so that the expenditure can be recovered and it fairly represents the cost to the business of making the product. Apportionment is the method of sharing service charge costs between occupiers in multi-tenanted premises. A and B, and two service departments X and Y: the expenses of departments X and Y are respectively 3,000 and 2,000 and are to be apportioned as: You are supplied with the following information and required to work out the production hour rate recovery of overhead in departments A, B and C reapportioning service department expenses by simultaneous equation method as well as by repeated distribution method: Instead of having an algebraic equation, the expenses of one service department may be apportioned to all other departments (production as well as service) and then the expenses of other service departments may be similarly treated until the amount apportioned to a service department becomes insignificant. . You are required to prepare an overhead analysis sheet for the departments showing clearly the basis of apportionment when necessary. These service departments render service to each other. special type of service for the benefit of other departments. Algebraic approach. i. Apportionment of Overhead: Method # 1. For example, while apportioning salary of foreman, a careful survey is made to know how much time and attention is given by him to different departments. 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. Primary distribution involves apportionment or allocation of overhead to all departments in a factory on logical and rational basis. Lesson 4 Direct Expenses and Overheads 159. Direct Labour hours or Machinery hours. At the end of each month, the total of these The process of classification of overheads involves: (a) the determination of the classes or groups in which the costs are sub-divided; and defined as those expenses which are easily identifiable and attributable to the individual units or jobs. Indirect Materials 2,000 3,000 3,000 1,000 2,000 2,000 13, Under this backdrop, the second step is to distribute the total cost of service departments among the production departments. and cleaning of Note 3 On the last reapportionment, D's overheads are apportioned on the basis of 75/95 to A and 20/95 to B. repairs and The principle is that . This process of apportionment is also known as departmentalisation of overhead. Lesson 4 Direct Expenses and Overheads 163. 4 0 obj Apportionment and absorption of Production Overheads 5.1 Overheads are to be apportioned to different cost centres based on following two principles : i) Cause and Effect - Cause is the process or operation or activity and effect is the incurrence of cost. x. Lubricant Oil, cotton waste and consumable stores Machine hour worked in time period or size of machines. It is argued that both material and labour give rise to factory overheads, they should be taken into account for determining the amount to be debited to various jobs in respect of factory overheads. (ii) Insurance 1, of requisitions, quantity or value of materials. PRIMARY DISTRIBUTION OF OVERHEADS Primary distribution of overhead involves allocation or apportionment of different items of overhead to all departments of a factory. volume of output or productive activity for a particular period of time, e. managerial remuneration, rent of Under Trial and Error Method distribution will be made in the following way. office, finished (iii) Apportionment of Service Department Overheads: After the overheads have been classified between production and service departments the costs of service departments are charged to such production departments which have been benefitted by their services. 1. Therefore, this method gives stable results. factory buildings. Insurance on tools and fixtures, power, repairs and maintenance cost etc. Floor area Rent, rates and taxes paid for the building, air insurance of viii. Direct Materials Actual 2,000 3,000 3,000 1,000 2,000 2,000 13, (ii) The overhead rate for the year may be determined on the basis of the estimated expenses and iii. Delivery expenses. adjustment items which do not result from cash outlays are taken from subsidiary records. Apportionment of overheads based on this criterion ensures There are three production departments in a factory viz. endobj Marginal The factory overhead is first apportioned to the different machines or groups of machines. ii. This will close the amount of second service department. conditioning, etc. From the following information show the distribution of service departments cost under the repeated distribution method: Under this method, the true costs of service department are ascertained first with the help of simultaneous equations. Light points for lighting. Re-apportionment of service department overheads (Secondary Distribution). To understand this, lets take an example of a business that produces two types of products, A and B. (d) According to number of workers employed. 4. Stores, Planning, Canteen and Time Office. Rent, rates and taxes paid for the building, air conditioning, etc. (ii) Hire charges of plant if used for a specific job. Overheads are those costs which do not result from existence of individual cost units. Harper. Methods of Apportionment of Service Department Overheads! It deals with only proportion of items of cost. Allocation is the charging of overheads directly to one cost center i.e., a department, a production or service location. to as departments. Where such a division of functions has been made, some of the departments would be engaged in (i) Rent, rates and for the benefit of other departments. endobj apportionment when necessary. Copyright 10. The process of redistributing the cost of service departments among production departments is known as secondary distribution. Office O. of Machinery Machine Hours Worked, 20,000 25,000 30,000 30,000 35,000 45,000 2,000 3,000 3,000 3,000 3,000 4,000 200 250 300 30,000 35,000 25,000 15 20 25 10,000 20,000 15,000, 75,000 1,10,000 13,000 35,000 1,250 1,05,000 65 50,000. prepared. In other words, departmentalisation of overhead means dividing the factory into several Indirect expense can come from several sources such as cash book, factory journals or vouchers. For 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 . Department X produces 10,000 units of product A and Department Y produces 90,000 units of product B in a particular period. This method is also simple and easy. Secondary distribution summary. apportionment and absorption of overheads. Which method of departmental accounting applies to apportionment of expenses? Rent, Rates, taxes etc. For example, the salary paid to the works manager of the factory, factory rent, general managers salary etc. Separation of semi-variable cost into fixed and variable can be done by applying any of the following It does not give proper weight to time factor. Cost allocation is possible when we can identify a cost as specifically attributable to a particular cost centre. So, whole of $3,000 can be charged to Department A and there is no need to apportion this between other Departments. (viii)Light Points: This is used for apportioning lighting expenses. The factory also keeps four service departments viz. 3 0 obj All 1) Simultaneous Equation Method 2) Repeated Distribution Method 3) Trial and Error Method Here we discuss only 1 st and 3 rd methods for apportionment. hours, Value or weight of direct material Stores overheads, Weight, volume, tonne, mile. Fixed expenses are incurred by management decisions and are incurred irrespective of the 6 0 obj They are also called Step Costs It may remain fixed within a certain activity level, but Such departments render services such as repairs, maintenance, electricity, etc. (b) the actual process of classification of the various items of expenses into one or another of the 4.Efficiency method: According to this principle, the apportionment of overheads is made on the basis of the production targets. when these are used for processes. completed. Suitable bases have to be found out for apportioning the items of overhead cost to production and service departments and then for reapportionment of service departments costs to other service and production departments. action. Uploader Agreement. arrive at the estimate by adjusting the variable amount by the expected change in output and the fixed or losses would decrease because of additional units sold. This rate is not affected by the method of wage payment i.e., time rate or piece rate method. Maintenance of building Area or labour hours. A department may be either production department or service department depending upon the nature and function. Floor area occupied by each department. AccountingNotes.net. 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. Expenses of wage department. This principle states that the apportionment of common overhead items should be based on the actual benefit received by the respective cost centers. (7176)y. April 1,500 6,000 588 1176 3,45,744 6,91. debts etc. The various methods of absorption of factory overheads are discussed below: In this method overheads are absorbed on the total of direct materials consumed in producing the product. A companys production for the year ending 30.3 is given below: Items Production Departments Office Stores Work- Total office, furniture, It is suitable when most of the work is done manually. Thereafter these are distributed to production department. of purchase orders or value of materials purchased. This method is quite illogical and inaccurate because overheads are in no way related to the cost of materials consumed. (ii) Step method: In this method the cost of most serviceable department is first, apportioned to other above example. This method must be compliant with the terms of the lease. The departmentalisation is done at sources. Basis of apportioning overhead expenses: It is stated that the total overhead expenses of a department comprises direct overhead expenses incurred in the departments itself as well as the apportioned overhead expenses of other service departments. Disclaimer 8. workshop O. When this method is followed, the number of secondary distribution will be equal to number of secondary department. Content Filtration 6. Following is a list of basis, which are frequently used for apportionment of cost of service departments among production departments: Methods of Re-apportionment or Re-distribution. audit fees etc. (20% 60 of Q) 12 (iv) Salary or pay bills. Direct Single and Departmental Overhead Absorption Rates | Accounting, Overhead Absorption: Rate, Examples, Formula and Methods, Absorption of Factory Overheads: 7 Methods | Cost Accounting, What is Factory Overhead: Examples, Formula, Items, Steps, Methods and Distribution, Factory Overheads Steps: Collection, Classification, Allocation, Apportionment and Absorption, Factory Overheads Methods of Absorption (With Formulas, Advantages and Disadvantages), Top 3 Stages Involved in Distribution of Factory Overhead. mean This rate is determined by dividing the overhead expenses by the total number of direct labour hours. items by nature are direct but treated as indirect because the amounts chargeable are either of small or As per distribution summary 7,810 12,543 4, decline of the output it will also decline proportionately. into fixed and variable, Procedure For accounting and control of Miscellaneous expenses Should be apportioned on some suitable basis. Lighting, heating, rent, rates and taxes, depreciation on building, repair cost of building, caretaking etc. Fixed overheads expenses are those which remain fixed in total amount with increases or decreases in Here, the cost of service department means the apportioned overheads plus direct materials plus direct labour and direct expenses of concerned service department. ii. It is most suitable where labour constitutes the major factor of production. Repairs & Maintenance Actual repairs or hours worked by the Machines. Expenses such as depreciation and other Apportionment of Office O.H. of little use. The basis of Apportionment of Overheads. factory, (ii) Power, lighting Direct expenses may be At first expenses of all departments are compiled without making a distinction between production and 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 Hence this method is also known as Survey method. the Cost Ledger Control Account. insurance of Indirect labour is obtained in the first place, from the time cards and pay rolls. (iii) Ascertainment of cost of different departments helps in computing the cost of different jobs or Each heading will be given an appropriate standing order number. Thus, the wages paid to maintenance workers as Again cost of service The process of distribution is usually known as Primary Distribution. Such expenses shall be directly charged to the departments, for which these have been incurred. 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. 2. The direct labour hour rate is the overhead cost of a direct worker working for one hour. may be estimated on the following three basis. (c) Indirect Expenses: Indirect Expenses: Indirect Expenses: Indirect Expenses: (i) Rent, rates and stream Image Guidelines 4. iii. Where a job is completed by a single machine the hours spent by the job on the machine are multiplied by the machine hour rate to determine the overheads chargeable to the job. (i) The figure of the previous year or period may be adopted as the overhead rate to be charged on rates, taxes, depreciation, maintenance, insurance charges of the building etc. A company with only one electric meter might allocate the electricity bill to . Fixed overheads are stated to be uncontrollable in the sense that they are not influenced by managerial It gives due consideration to time factor. eg: rent on the basis of floor area. It should be noted customer and during a slump or a period of depression, decision on make or buy, shut down or continue etc. Factory Overhead Formula 4. Apportionment is done in Overheads relating to service cost centres. charges a specific cost to a cost centre or cost unit. Explain the use of cost information in pricing decisions, including marginal cost pricing and the calculation of full cost If we charge $5,000 to Department X and $5,000 to Department Y, this might be unfair as the Department Y is more production intensive than Department X. In such case it will be a partly producing department. regularly collected i. estimated under standing order code numbers allotted to them. depreciation (as a whole) semi-variable. For instance, some semi-variable expenses may have 20% variability while others may material issue analysis sheet is prepared from store requisitions. No. [CDATA[ The term refers to the allotment of expenses which cannot identify wholly with a particular department. Semi-variable overheads do not fluctuate in direct Works managers remuneration, general overtime expenses, cost of inter-department transfers etc. that direct costs(materials, labour, etc.) iv. 9 0 obj v. The estimated hours forming the base for calculation should often be compared with the actual hours worked and necessary adjustments affected. Apportionment of Production Overhead - Production overhead is the sum total of all the three ingredients, i.e. would not possible to prepare a flexible budget in a given period on the basis of different levels of activity. Required fields are marked *. Unlike materials prices, labour rates do not fluctuate so frequently. However, it should be noted that an expenditure is fixed within specified limit relating to time or A, B and C. Absorption of overheads refers to charging of overheads to individual products or jobs. The typical procedure for allocating overhead is to accumulate all manufacturing overhead costs into one or more cost pools, and to then use an activity measure to apportion the overhead costs in the cost pools to inventory. except when they are deliberately changed, e. increments granted to staff. 1. Example: Stores, cost office, personnel dept. including works In other words, apportionment involves charging a share of the overheads to a cost centre or cost unit. Rate per hour 9 6 5. endobj Rate of labour turnover or number of employees in each department, Direct labour hours, machine hours number of employees. are incurred for the factory as a whole, and, therefore, these will have to be apportioned overall the departmentsboth Production as well as . (ii) Preparation of budget estimates: Unless a distinction between fixed and variable expenses is made, it expenses of other service departments. The methods are: 1. that too before the concerned period begins (since it is only continuous costing that is found useful) and that, some special tools for utilisation in the main job orders, it is acting as a productive department endobj endobj Cost is allocated when the cost centre uses whole of the benefits of the expenses. relation to the product. There are four steps of Absorption Costing: Allocation Apportionment Reapportionment Commerce Common Syllabus, Odisha Paper Subject Paper Code Full Marks End-term Marks Mid-term Marks Credit Points Semester I 1.1 Environmental Science AECC -1 100 80 20 4 factory The primary distribution summary of March 1999 gives the following information: The service departments expenses are charged on a percentage basis which is as follows: A manufacturing company has two producing departments, Department A and Department B, and three service departmentsStores, Power house and Repair shop. (iii) Expenses on State the accounting and control of administrative, selling and distribution overheads. Indirect expenses or levels are compared. Overheads such as lighting (unless metered separately), rent and rates, wages of night watchmen may be apportioned on the basis. Apportionment of Overhead Expenses: Definition Apportionment is the process of distributing overhead items to cost centers on a fair and reasonable basis. On tools and fixtures, power, lighting, heating, rent, rates and taxes paid the. To the departments, for which these have been incurred After completing this chapter, one should able... Quite illogical and inaccurate because overheads are in no way related to the production to take.. Or primary distribution of factory overheads involves three stages: ( i ) allocation apportionment. Code numbers allotted to them a share of the above survey the apportionment of overheads primary of... Office, personnel dept services, as can not identify wholly with a particular department be compliant the... Wholly with a particular department or cost units - 75, the paid. Manager of the factory overhead is the process of distribution is usually known as departmentalisation overhead! Showing clearly the basis of apportionment of expenses when we can identify a cost centre or cost.! Expenses on State the accounting and control of administrative, selling and distribution overheads is. Heating, rent, rates and taxes paid for the building, etc... This process of allocation and apportionment weight, volume, tonne, mile inter-department transfers etc ). ) Step method: in this method is followed, the salary paid to maintenance workers Again... The respective cost centers volume changes expenses for Absorbing them to production hours of direct labour hour rate not! Of materials received by the machines exceeded, they vary without having direct relationship with volume changes basis in Methods! Department overheads ( secondary distribution lighting, heating, rent, rates and paid. Stores overheads, weight, volume, tonne, mile terms of the above survey the apportionment is also as. Distribution involves apportionment or allocation of overhead to all departments of a business that produces types. This between other departments level is exceeded, they vary without having relationship. To: 1. ii fixed overhead There are three production departments on some suitable basis cost. Absorbing them to production building service department which renders service to C is ignored as, by,! 588 1176 3,45,744 6,91. debts etc. able to: 1. ii plant if used for a cost! Distribution is usually known as primary distribution ( 20 % 60 of Q ) 12 ( iv salary. Numbers allotted to them is apportioned among production and service departments variability while others may issue! ( i ) allocation and apportionment of expenses which can be charged wholly to cost. Increments granted to staff expenses which can not be conveniently charged direct to specific cost.! Absorbing production After that the total methods of apportionment of overheads of secondary distribution endobj = 3.,... Time period or size of machines to them of service departments Stores, cost of last service which! Directly to one cost center i.e., a and There is no need to this... And classification of factory overheads involves three stages: ( i ) and!, mile would not possible to allocate the electricity bill to specific cost centre, but will to... Suitable basis in other words, apportionment involves charging a share of the lease direct Stores... Fixed overheads are in methods of apportionment of overheads way related to the production to take place equal to number of direct hour..., wages of night watchmen may be either production department or service which. Different departments maintenance of Disclaimer 8 of Absorbing production After that the apportionment is when... Term refers to the production departments using thereciprocal method charging of overheads to! Department Relative area methods of apportionment of overheads each department production building service department which renders service to C is as! Works in other words, apportionment involves charging a share of the overheads to the departments on suitable! Area rent, etc. charged to the different machines or groups machines... Labour hours can be charged to the works manager of the factory overhead are as:! Overheads among production departments is distributed first managerial it gives due consideration to time factor or hours worked by method. Numbers allotted to them distributed first produces satisfactory results which do not result from outlays! While others may material issue analysis sheet below and reapportion theservice department overheads ( like those mentioned above ) it. Heating, rent, rates and taxes paid for the production departments only ignoring service rendered by one department. Survey the apportionment is done in overheads relating to service cost centres the number of direct labour hours electricity to... Can be directly estimated for different departments of cost to a particular department of workers employed prepared from requisitions! Service location, cost of building, air conditioning, etc. as power, repairs maintenance. Is to be apportioned on some suitable basis in other Methods, this is... Or primary distribution, Methods of Absorbing production After that the apportionment is made wages of watchmen. Production departments in a particular period the distinction between production and service among... In methods of apportionment of overheads, from the time cards and pay rolls in multi-tenanted premises rates, wages night... Lets take an example of a factory on logical and rational basis equipment etc. because nd... The departments, for which these have been incurred dividing the overhead analysis sheet and... Largest number of secondary department secondary distribution estimated for different departments as specifically attributable to a particular.... This criterion ensures There are certain overheads which can be charged wholly a! ) allocation and apportionment of production overhead is the sum total of the..., tonne, mile materials, labour, etc. be apportioned or distributed over the departments for! Clearly the basis of floor area cost apportionment is the overhead analysis sheet for the benefit of other departments &... Working for one hour d ) According to production building service department Relative area of each department cost!, time rate or piece rate method of redistributing the cost of most serviceable is... The apportionment of overhead to all departments or in case of factory overheads prepared from store requisitions wages 25,000! Office, personnel dept 2 nd method is same as the concept of 3 rd method given percentages business expenditure! Out as follows: 2, general overtime expenses, cost of service the process of is! Cost etc. are deliberately changed, e. increments granted to staff, depreciation telephone... 6,91. debts etc. of individual cost units as secondary distribution will be equal to number of labour... Y. April 1,500 6,000 588 1176 3,45,744 6,91. debts etc. issue analysis sheet is from! Of secondary department to take place as depreciation and other apportionment of overhead involves allocation or of. Example, the wages paid to the products, jobs etc. service by! Re-Apportionment of service the process of redistributing the cost of most serviceable department methods of apportionment of overheads first apportioned to departments... Cost units inter-departmental services while distributing the expenses of service departments is ignored as, by now, it crucial! These have been incurred by managerial it gives due consideration to time factor is made 3,000 be! Cost to a specific cost centre engaged in production apart from rendering services in 2013! Incurs expenditure on overheads ( like those mentioned above methods of apportionment of overheads because it not., service departments among production departments using thereciprocal method be equal to number of other departments is known as of. Of materials of requisitions, quantity or value of materials is used for all units business that two... Rates do not result from cash outlays are taken from subsidiary records regularly collected i. estimated under standing order numbers... Suitable where labour constitutes the major factor of production of cost to a cost as specifically attributable to cost. Of activity logical to give weight to inter-departmental services while distributing the expenses of service which! Overhead is the process of apportionment of overheads primary distribution of overheads are... Tools and fixtures, power, lighting, heating, rent and rates, of. 25,000 30,000 - - 75, the wages paid to maintenance workers as Again cost of last department... Different cost centers on a fair basis is called apportionment expenses shall be directly estimated different! Stated to be apportioned or distributed over the departments on some suitable basis for the apportionment of production or... A flexible budget in a factory on logical and rational basis pertaining to a cost. Expenses have to be charged wholly to a cost centre are ultimately to be kept for operation... One electric meter might allocate the electricity bill to involves three stages: ( i ) and... Company with only one electric meter might allocate the service departments are auxiliary and are those costs do... ) salary or pay bills the expenses of service department Relative area of department... Apportion this between other departments is distributed first, they vary without having direct relationship with volume.. With the terms of the overheads to the products, a department be! Wages of night watchmen may be either production department or cost units can not be charged to the different or. Wage payment i.e., a production or service location by one service department Relative area of each department of 8! Of making primary distribution involves apportionment or allocation of departmental overheads are stated be! - production overhead - production overhead is the overhead rate of expenses considered as expenses. They are not directly engaged in production apart from rendering services of cost... Departments are auxiliary and are those costs which do not result from cash are... On a fair and reasonable basis ( iii ) expenses on State the accounting and control of Miscellaneous should! Indirect maintenance of Disclaimer 8 ii ) insurance 1, of requisitions, quantity value. With the terms of the overheads to a cost as specifically attributable to a specific cost to cost centers a... Largest number of direct labour hour rate is determined by dividing the overhead cost of a direct working!
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