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

Which of the following is an example of a cost that is allocated, rather than apportioned, to a production department?

Depreciation of a machine installed only in the Assembly department is allocated, because the entire cost belongs to a single department. Rent, electricity and canteen costs are shared over several departments using bases such as area, units consumed or workers, which makes them apportionment.

  1. AFactory rent shared by three departments on the basis of floor area
  2. BDepreciation of a machine installed only in the Assembly departmentCorrect
  3. CFactory electricity shared on the basis of kilowatt-hours
  4. DCanteen expenses shared on the basis of number of workers

Explanation

Allocation means charging the whole of an item of cost directly to one cost centre or department. Depreciation of a machine used only in Assembly belongs entirely to that department, so it is allocated. The other three items are shared among departments using a basis, which is apportionment.

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