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

Which of the following is the correct sequence of steps in the absorption costing treatment of factory overheads?

The correct sequence is allocation, apportionment, reapportionment of service department costs to production departments, and finally absorption into products or jobs. Allocation and apportionment must come first to collect costs by department, so absorption can only happen once the production departments carry the full overhead.

  1. AAllocation, apportionment, reapportionment of service department costs, absorptionCorrect
  2. BAbsorption, allocation, apportionment, reapportionment
  3. CApportionment, allocation, absorption, reapportionment
  4. DReapportionment, absorption, allocation, apportionment

Explanation

Overheads are first allocated to departments where wholly identifiable, then common items are apportioned on a suitable basis. Service department costs are then reapportioned to production departments, and finally the totals are absorbed into units or jobs using rates. The other sequences reverse these logical steps.

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