PPT - Allocation, Apportionment & Absorption | Cost Accounting - B Com PDF Download

 Page 1


Cost Allocation, Apportionment 
and Absorption of Overheads
1
Page 2


Cost Allocation, Apportionment 
and Absorption of Overheads
1
Learning Objectives
• To understand and apply the cost concepts
– Cost Allocation
– Apportionment  of Overheads
– Absorption of Overheads
2
Page 3


Cost Allocation, Apportionment 
and Absorption of Overheads
1
Learning Objectives
• To understand and apply the cost concepts
– Cost Allocation
– Apportionment  of Overheads
– Absorption of Overheads
2
Introduction
The objective of Cost Accounting is classifying 
costs and recording an appropriate allocation of 
expenditure for the determination of the costs of 
products or services, and for the presentation of 
suitably arranged data for the purpose of control 
and guidance of management 
3
Page 4


Cost Allocation, Apportionment 
and Absorption of Overheads
1
Learning Objectives
• To understand and apply the cost concepts
– Cost Allocation
– Apportionment  of Overheads
– Absorption of Overheads
2
Introduction
The objective of Cost Accounting is classifying 
costs and recording an appropriate allocation of 
expenditure for the determination of the costs of 
products or services, and for the presentation of 
suitably arranged data for the purpose of control 
and guidance of management 
3
Cost Allocation 
4
• When items of cost are identifiable directly with some products or
departments such costs are charged to cost centres. This process is known as
cost allocation.
• It is the charging of discrete, identifiable items of cost to cost centres or cost
units.
• It is complete distribution of an item of overhead to the departments or
products on logical or equitable basis is called allocation.
• Where a cost can be clearly identified with a cost centre or cost unit, then it
can be allocated to that particular cost centre or unit.
• Allocation is the process by which cost items are charged directly to a cost unit
or cost centre.
• Cost allocation calls for two basic factors –
– Concerned department/product should have caused the cost to be
incurred
– Exact amount of cost should be computable.
Page 5


Cost Allocation, Apportionment 
and Absorption of Overheads
1
Learning Objectives
• To understand and apply the cost concepts
– Cost Allocation
– Apportionment  of Overheads
– Absorption of Overheads
2
Introduction
The objective of Cost Accounting is classifying 
costs and recording an appropriate allocation of 
expenditure for the determination of the costs of 
products or services, and for the presentation of 
suitably arranged data for the purpose of control 
and guidance of management 
3
Cost Allocation 
4
• When items of cost are identifiable directly with some products or
departments such costs are charged to cost centres. This process is known as
cost allocation.
• It is the charging of discrete, identifiable items of cost to cost centres or cost
units.
• It is complete distribution of an item of overhead to the departments or
products on logical or equitable basis is called allocation.
• Where a cost can be clearly identified with a cost centre or cost unit, then it
can be allocated to that particular cost centre or unit.
• Allocation is the process by which cost items are charged directly to a cost unit
or cost centre.
• Cost allocation calls for two basic factors –
– Concerned department/product should have caused the cost to be
incurred
– Exact amount of cost should be computable.
Cost Allocation- Examples
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• Electricity charges can be allocated to various departments if separate meters
are installed
• Depreciation of machinery can be allocated to various departments as the
machines can be identified
• Salary of stores clerk can be allocated to stores department
• Cost of coal used in boiler can be directly allocated to boiler house division.
• Wages paid to workers of service department can be allocated to the particular
department.
• Indirect materials used by a particular department can also be allocated to the
department.
Thus allocation is a direct process of identifying overheads to cost units or cost 
centres. So the term allocation means allotment of whole item of cost to a 
particular cost centre or cost object without any division.