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

Which of the following is the usual basis for apportioning the cost of factory building rent among production and service departments?

Factory building rent is apportioned on the basis of floor area occupied by each department, because the cost arises from the use of space. Other bases such as headcount, machine hours or wages relate to different services and would not reflect space consumption fairly.

  1. AFloor area occupied by each departmentCorrect
  2. BNumber of employees in each department
  3. CMachine hours of each department
  4. DDirect wages of each department

Explanation

Building rent is a cost of space, so it is apportioned on the floor area (or cubic content) occupied by each department. Number of employees suits canteen or welfare costs, machine hours suit power or depreciation of machines, and direct wages suits items related to labour value.

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