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Cost Accounting · Overheads

Apportionment of Overheads to Cost Centres

Updated 10 October 2026 · Fact-checked

Apportionment is the fair sharing of an overhead that benefits several cost centres. You pick a base that reflects the benefit each centre receives, such as floor area for rent. Divide the overhead by the total base to get a rate, multiply by each centre's share, and check the totals tally.

Understand Apportionment of Overheads to Cost Centres

A factory has many cost centres. Some are production departments, such as machining and assembly. Others are service departments, such as stores, maintenance and canteen. Some overheads, such as rent, power and depreciation, are incurred for the whole factory. No single centre can claim them. They must be shared.

Sharing has two parts. Allocation charges an overhead in full to one centre when it clearly belongs there, for example the salary of the machining supervisor. Apportionment splits an overhead across two or more centres when it is common to them. Together they make up the primary distribution: every factory overhead ends up in some production or service centre.

The key idea is benefit received. You choose a base that tracks how much each centre uses or gains from the cost. Rent follows floor area, because more space means more rent. Power follows kWh or horsepower × hours. Depreciation and insurance of machinery follow the value of assets. Canteen and welfare costs follow the number of employees. Lighting follows light points or area.

Once you have the base, the arithmetic is the same every time: compute a rate per unit of base, then multiply it by each centre's units. The service department costs are then moved on to production departments. That is a separate step called re-apportionment, and it is not part of primary distribution.

Key rules to remember

Apportionment rate
Rate per unit of base = Total overhead ÷ Total units of base (all centres)
Include service departments in the total base. They also use the shared facility.
Share of a centre
Overhead apportioned to a centre = Rate × Centre's units of base
Equivalent to Overhead × (Centre's base ÷ Total base).
Check
Σ of amounts apportioned to all centres = Total overhead
Always verify this. Also check that the grand total of all centres equals total overheads.
Usual bases
Rent, rates, building depreciation, building insurance → floor area or volume | Lighting → light points or area | Power → kWh, or HP × hours | Machinery depreciation, insurance, repairs → value of machinery | Canteen, welfare, supervision → number of employees | Time-keeping, payroll → employees or labour hours | Stores costs → number or value of requisitions
Use the base given in the question. If none is given, choose the one that reflects benefit and state it.

How to solve Apportionment of Overheads to Cost Centres questions

Use this method for any primary distribution question. Draw a table with overheads down the side and cost centres across the top.

  1. 1List all centres, production and service, and all overheads with their amounts.
  2. 2Separate overheads that can be allocated directly to one centre from those that are common.
  3. 3Enter the allocated items straight into the correct column.
  4. 4For each common overhead, select the base given or the one that best reflects benefit.
  5. 5Add up the base across all centres and compute the rate per unit of base.
  6. 6Multiply the rate by each centre's units and write the result in the table. Mention the base next to each overhead.
  7. 7Total each row and check it equals the overhead. Total each column to get the primary distribution cost of each centre.
  8. 8Confirm that the grand total equals total overheads. Stop here unless the question asks for re-apportionment.

Quickest way: Rate-per-unit table method

When to use it: Use it when the question gives several overheads and several bases in one table, which is the usual exam format.

  1. Write the base units in a small table first and total them.
  2. Reduce each base to a simple ratio, for example 3,000 : 2,000 : 1,000 becomes 3 : 2 : 1.
  3. Divide the overhead by the sum of the ratio parts and multiply by each part.
  4. Write each row total and tick it against the overhead before moving to the next row.
  5. Add the columns last and compare the grand total with the sum of all overheads.

Common mistakes in Apportionment of Overheads to Cost Centres

  • Leaving service departments out of the base total

    Students think only production departments use rent or power.

    Fix: Service departments occupy space and use power too. Include every centre in the total base unless the question says otherwise.

  • Apportioning an item that should be allocated

    Students push every overhead through a base, even when it belongs to one centre.

    Fix: Read the data first. If an expense is stated as incurred for one department, charge it there in full.

  • Using a base that does not match the cost

    Students apply one familiar base, such as area, to everything.

    Fix: Link each cost to its driver: rent to area, machinery depreciation to asset value, power to kWh or HP × hours, canteen to employees.

  • Doing re-apportionment inside primary distribution

    Students rush to close the service departments.

    Fix: Primary distribution stops when every overhead sits in some centre. Move service costs only if the question asks for it.

  • Not checking totals

    A small slip in a ratio or division goes unnoticed.

    Fix: Tick every row total against the overhead and the grand total against total overheads before moving on.

  • Taking HP alone for power when hours are also given

    Students skip part of the data.

    Fix: When both HP and running hours are given, multiply them to get the base units for each centre.

Worked examples

Example 1

A factory has production departments P1 and P2 and a service department, Stores. Overheads for the month: rent ₹1,20,000; depreciation of machinery ₹90,000; power ₹60,000; lighting ₹40,000; canteen cost ₹1,00,000. Data: floor area P1 3,000 sq ft, P2 2,000 sq ft, Stores 1,000 sq ft. Machinery value P1 ₹6,00,000, P2 ₹3,00,000, Stores ₹1,00,000. Power consumption P1 5,000 units, P2 4,000 units, Stores 1,000 units. Light points P1 10, P2 6, Stores 4. Employees P1 30, P2 15, Stores 5. Prepare the primary distribution of overheads.

Show the solution
  1. Rent on floor area: total 6,000 sq ft, rate ₹20 per sq ft. P1 ₹60,000; P2 ₹40,000; Stores ₹20,000.
  2. Depreciation on machinery value: total ₹10,00,000, so 9%. P1 ₹54,000; P2 ₹27,000; Stores ₹9,000.
  3. Power on units consumed: total 10,000 units, rate ₹6 per unit. P1 ₹30,000; P2 ₹24,000; Stores ₹6,000.
  4. Lighting on light points: total 20 points, ₹2,000 per point. P1 ₹20,000; P2 ₹12,000; Stores ₹8,000.
  5. Canteen on employees: total 50, ₹2,000 per employee. P1 ₹60,000; P2 ₹30,000; Stores ₹10,000.
  6. Column totals: P1 = 60,000 + 54,000 + 30,000 + 20,000 + 60,000 = ₹2,24,000. P2 = 40,000 + 27,000 + 24,000 + 12,000 + 30,000 = ₹1,33,000. Stores = 20,000 + 9,000 + 6,000 + 8,000 + 10,000 = ₹53,000.
  7. Check: 2,24,000 + 1,33,000 + 53,000 = ₹4,10,000, which equals 1,20,000 + 90,000 + 60,000 + 40,000 + 1,00,000.

Answer: Primary distribution: P1 ₹2,24,000; P2 ₹1,33,000; Stores ₹53,000; total ₹4,10,000.

Example 2

A company has Machining, Assembly and Maintenance (service) departments. Indirect wages are allocated: Machining ₹18,000, Assembly ₹12,000, Maintenance ₹9,000. Common overheads: power ₹78,000 (on HP × running hours); insurance ₹36,000 (on asset value); managers' salaries ₹60,000 (on number of employees). Data: HP × hours — Machining 50 HP × 1,800 hours, Assembly 20 HP × 1,500 hours, Maintenance 10 HP × 1,000 hours. Asset value — Machining ₹8,00,000, Assembly ₹3,00,000, Maintenance ₹1,00,000. Employees — Machining 20, Assembly 25, Maintenance 5. Find the total overhead of each department after primary distribution.

Show the solution
  1. Allocate indirect wages directly: Machining ₹18,000; Assembly ₹12,000; Maintenance ₹9,000. No base is needed.
  2. Power base: Machining 50 × 1,800 = 90,000; Assembly 20 × 1,500 = 30,000; Maintenance 10 × 1,000 = 10,000. Total 1,30,000. Rate = 78,000 ÷ 1,30,000 = ₹0.60. Machining ₹54,000; Assembly ₹18,000; Maintenance ₹6,000.
  3. Insurance on asset value: total ₹12,00,000, so 3%. Machining ₹24,000; Assembly ₹9,000; Maintenance ₹3,000.
  4. Managers' salaries on employees: total 50, ₹1,200 each. Machining ₹24,000; Assembly ₹30,000; Maintenance ₹6,000.
  5. Machining = 18,000 + 54,000 + 24,000 + 24,000 = ₹1,20,000. Assembly = 12,000 + 18,000 + 9,000 + 30,000 = ₹69,000. Maintenance = 9,000 + 6,000 + 3,000 + 6,000 = ₹24,000.
  6. Check: 1,20,000 + 69,000 + 24,000 = ₹2,13,000. Total overheads = 39,000 + 78,000 + 36,000 + 60,000 = ₹2,13,000.

Answer: Machining ₹1,20,000; Assembly ₹69,000; Maintenance ₹24,000; total ₹2,13,000.

Exam tips

  • Always draw the full table with overheads in rows and departments in columns. Step marks are given for the base, the rate and the totals.
  • Write the base beside each overhead, for example 'Rent – floor area'. This earns marks even if a number slips.
  • Watch for combined bases such as HP × hours. Compute the product before totalling.
  • In MCQs, spot whether the item is allocated or apportioned, then apply the base. Do a quick total check to eliminate wrong options.
  • If the question also gives service department percentages, finish the primary distribution first. Then do re-apportionment as a separate table.

Practice questions from Overheads

Apportionment of Overheads to Cost Centres in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Apportionment of Overheads to Cost Centres: frequently asked questions

What is the difference between allocation and apportionment of overheads?

Allocation charges the whole overhead to one cost centre because it clearly belongs there. Apportionment divides a common overhead among several centres using a suitable base. Both together form the primary distribution.

Which base is used to apportion rent, depreciation and power?

Rent is usually apportioned on floor area. Depreciation of machinery goes on the value of machinery. Power goes on kWh consumed, or horsepower × running hours when those are given. Always use the base stated in the question.

Do service departments get a share in primary distribution?

Yes. Service departments use space, power and other facilities, so they receive their share of common overheads and their units belong in the total base. Their costs are moved to production departments later, in re-apportionment.

What if the question does not state the base?

Choose the base that best reflects the benefit each centre receives, and write it down in your answer. A reasoned base, applied correctly, earns method marks.