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

Which of the following is the most appropriate basis for apportioning factory rent among production departments?

Floor area occupied is the appropriate basis for apportioning factory rent. Rent is incurred for space, so departments using more area should bear more of it. Employee numbers suit welfare costs and machine values suit depreciation.

  1. ANumber of employees
  2. BFloor area occupiedCorrect
  3. CValue of machinery
  4. DDirect wages

Explanation

Rent relates to the space used, so floor area is the standard basis. Number of employees suits canteen or welfare costs, and machinery value suits depreciation and insurance of machines.

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