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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 a factory canteen among production and service departments?

Canteen expenses are apportioned on the basis of the number of employees in each department, because the benefit of the canteen is enjoyed by workers. Floor area, machinery value or material cost relate to other overheads such as rent, depreciation or stores handling.

  1. AFloor area occupied by each department
  2. BNumber of employees in each departmentCorrect
  3. CValue of machinery in each department
  4. DDirect material cost of each department

Explanation

Canteen services are consumed by people, so the number of workers in each department is the standard apportionment basis. Floor area suits rent, and machine value suits depreciation and insurance of machinery. Material cost has no link with canteen usage.

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