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CMA Intermediate · Cost Accounting · Overheads

In the context of overhead cost accounting, 'allocation' of overheads refers to which of the following?

Allocation is the assignment of whole items of overhead cost directly to a single cost centre or cost unit that caused them. Sharing a common cost among several centres is apportionment, not allocation, and absorption into products uses an overhead rate.

  1. AAssigning whole items of overhead cost directly to a single cost centre or cost unitCorrect
  2. BSpreading a common overhead cost over several cost centres on an equitable basis
  3. CCharging the overhead of service departments to production departments
  4. DAbsorbing overheads into products using a predetermined rate

Explanation

Allocation means charging the full amount of an overhead item to the one cost centre or cost unit that incurred it, for example the salary of a supervisor who works only in the Machining department. Spreading a shared cost over several centres is apportionment, and charging service department costs to production departments is reapportionment (secondary distribution).

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