Question

What are the difference between allocation, apportionment and absorption of overhead?

Answer 1

In overhead, there are three categories and they all deal with different situations. Below find the explanation on how they are different from each other:

1. Allocation: It is used for determining, managing and controlling cost.
2. Apportionment: When a product cannot be identified clearly for any category or department, it goes to the Apportionment.
3. Absorption: Every product and every department gets its own amount of overhead with the help of Absorption.

Answer 2

The term overhead allocation suggests the apportionment of indirect costs to produced goods.

The term overhead absorption means the indirect cost amount that is allotted to cost objects.

Indirect cost refers to costs that cannot be linked directly to some activity.

Apportionment of overheads means the proportionate distribution of overheads among several cost centres and departments. Here lies the difference among the terms.