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CA Intermediate · Cost and Management Accounting · Overheads - Absorption Costing Method

Which of the following is an example of a basis normally used to apportion the cost of factory building depreciation among production and service departments?

Floor area occupied is the correct basis, because depreciation of a factory building is a cost of providing space. Departments that occupy more area benefit more from the building and should bear more of the charge, unlike bases tied to labour or materials.

  1. ADirect labour hours of each department
  2. BFloor area occupied by each departmentCorrect
  3. CNumber of employees in each department
  4. DValue of materials requisitioned by each department

Explanation

Building depreciation relates to space occupied, so floor area (or cubic content) is the standard apportionment basis. Labour hours, headcount and material value do not reflect use of the building, so they are not the proper bases.

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