Discuss the various principles of apportionment of overheads. Give few examples of the bases used for apportionment and re-apportionment
Answers
The various principles of apportionment of overheads -
As stated earlier, the overheads (normal cost) of the common firm have to be attached to different production and service departments on some common basis. In the procedure of determining the basis to be acquired, the given guiding principles can be followed:
1. Actual advantage: According to the principle, overheads are distributed in different departments on the basis of actual profit. It can be adopted where it is possible to measure the actual profit obtained from a particular cost.
For example, different departments can be appointed on the basis of rental occupation area. Similarly, the cost of the machine shop can be done on a real time basis devoted to every work, for which proper job cards are maintained.
2. Potential advantage : Distributing general costs will be ideal, based on the actual profit given, but, in most of the cases, the measure of actual profit can not be possible or it may be too unmanageable to keep the necessary records. Therefore, it is advocated that appeals can be made on the basis of potential benefits.
For example, if the cost of lighting is estimated on the basis of the actual profit obtained then you have to keep a record of the no. of light points in each department, the wattage of the bulbs used in each light point, and the time, the amount of which would be at each point was on. It's rather impractical.
Therefore, the costs of lighting costs can be estimated in each department based on light pine. Similarly, the cost of transport for workers can be appealed on the basis of the number of employees in each department. This method is also called 'service or use' method.
Answer:
If the services rendered by a particular item of expense to different departments can be measured overhead, it can be conveniently apportioned on this basis.
Thus the cost of maintenance may be apportioned to different departments on the basis of machine hours or capital value of the machines, rent charges to be distributed according to the floor space occupied by each department.
Explanation: