{"id":25531540,"date":"2022-07-02T14:53:27","date_gmt":"2022-07-02T09:23:27","guid":{"rendered":"https:\/\/entri.app\/blog\/?p=25531540"},"modified":"2023-11-10T15:16:56","modified_gmt":"2023-11-10T09:46:56","slug":"basis-of-apportionment","status":"publish","type":"post","link":"https:\/\/entri.app\/blog\/basis-of-apportionment\/","title":{"rendered":"Basis of Apportionment &#8211; Definition, Method and Pattern"},"content":{"rendered":"<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_79_2 counter-hierarchy ez-toc-counter ez-toc-custom ez-toc-container-direction\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<label for=\"ez-toc-cssicon-toggle-item-69ea84b331a8e\" class=\"ez-toc-cssicon-toggle-label\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-69ea84b331a8e\"  aria-label=\"Toggle\" \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/entri.app\/blog\/basis-of-apportionment\/#Concept_of_Overhead\" >Concept of Overhead<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/entri.app\/blog\/basis-of-apportionment\/#Collection_of_Factory_Overheads\" >Collection of Factory Overheads<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/entri.app\/blog\/basis-of-apportionment\/#Allocation_and_Apportionment_of_Factory_Overhead\" >Allocation and Apportionment of Factory Overhead<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/entri.app\/blog\/basis-of-apportionment\/#Methods_of_Apportionment\" >Methods of Apportionment<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/entri.app\/blog\/basis-of-apportionment\/#Summary\" >Summary<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/entri.app\/blog\/basis-of-apportionment\/#Apportionment_Quiz\" >Apportionment: Quiz<\/a><\/li><\/ul><\/nav><\/div>\n<p><strong>Apportionment<\/strong> is a common term used in accounting to describe the way a business separates and distributes a portion of its gross income. This usually\u00a0applies\u00a0to a company\u2019s overheads as a\u00a0method to\u00a0calculate the correct costs, especially when the business is spread across various\u00a0departments, subsidiaries or countries of operation.<\/p>\n<p>In order to understand apportionment clearly one has to be familiar with the concept of \u00a0overhead. In this article we will discuss briefly\u00a0about the overhead costs, Its allocation and apportionment. Before we dive deep into the detailed discussion about Apportionment, its definition, method and pattern.<\/p>\n<p><a href=\"https:\/\/entri.sng.link\/Bcofz\/yv45\/8wer\" target=\"_blank\" rel=\"noopener\"><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter wp-image-25483248 size-full\" src=\"https:\/\/entri.app\/blog\/wp-content\/uploads\/2020\/09\/Stay-Updated-for-GK-Current-Affairs1.png\" alt=\"Stay Updated for Free GK &amp; Current Affairs\" width=\"970\" height=\"250\" srcset=\"https:\/\/entri.app\/blog\/wp-content\/uploads\/2020\/09\/Stay-Updated-for-GK-Current-Affairs1.png 970w, https:\/\/entri.app\/blog\/wp-content\/uploads\/2020\/09\/Stay-Updated-for-GK-Current-Affairs1-300x77.png 300w, https:\/\/entri.app\/blog\/wp-content\/uploads\/2020\/09\/Stay-Updated-for-GK-Current-Affairs1-768x198.png 768w, https:\/\/entri.app\/blog\/wp-content\/uploads\/2020\/09\/Stay-Updated-for-GK-Current-Affairs1-750x193.png 750w\" sizes=\"auto, (max-width: 970px) 100vw, 970px\" \/><\/a><\/p>\n<h2><span class=\"ez-toc-section\" id=\"Concept_of_Overhead\"><\/span><strong><b>Concept of Overhead<\/b><\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>A cost is a component of three elements:<\/p>\n<p>(a) material<\/p>\n<p>(b) labour, and<\/p>\n<p>(c) expenses.<\/p>\n<p>Each of these costs can be further divided into\u00a0direct and indirect.<\/p>\n<p><strong><b>Direct costs <\/b><\/strong><strong><b>: <\/b><\/strong>They are costs which can be easily be recognised\u00a0with a particular product, process or department.<\/p>\n<p><strong><b>Indirect costs<\/b><\/strong>: \u00a0They\u00a0refer to costs which cannot be easily identified with a particular product, process or department. These are common costs, like repairs,\u00a0rent, \u00a0salaries, lubricating oil, which are incurred for the benefit of various\u00a0cost units or cost centres. The sum\u00a0of all indirect costs i.e., indirect material, indirect labour and indirect expenses, is called \u00a0\u2018<strong><b>overheads<\/b><\/strong>\u2019.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"Collection_of_Factory_Overheads\"><\/span><strong><b>Collection of Factory Overheads<\/b><\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>As mentioned earlier, overheads are not directly related\u00a0to a particular cost unit, process or department. Hence, there is a need for distribution of overheads to various\u00a0products manufactured or to the various departments.<\/p>\n<p>There are 4 steps in overheads distribution. They are:<\/p>\n<p>a) Collection of overheads<\/p>\n<p>b) Allocation and apportionment to production and service departments c) Re-apportionment of service department costs<\/p>\n<p>d) Absorption of overheads<\/p>\n<p>The 1<sup>st<\/sup>\u00a0\u00a0step in overhead distribution is the aggregation of overheads. This means the ascertainment of the total amount paid for\u00a0each item of overheads during a particular period.<\/p>\n<p style=\"text-align: center;\"><strong><a href=\"https:\/\/entri.sng.link\/Bcofz\/yv45\/8wer\" target=\"_blank\" rel=\"noopener\">Attempt free GK Mock Test! Download Entri App!<\/a><\/strong><strong><b>\u00a0<\/b><\/strong><\/p>\n<h2><span class=\"ez-toc-section\" id=\"Allocation_and_Apportionment_of_Factory_Overhead\"><\/span><strong><b>Allocation and Apportionment of Factory Overhead<\/b><\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>After the overheads are segregated and classified \u00a0under various standing order numbers, the 2<sup>nd<\/sup>\u00a0\u00a0step in overhead distribution is allocation and apportionment of overheads to service and production departments.<\/p>\n<h3><strong><b>Allocation<\/b><\/strong><\/h3>\n<p>Allocation is \u201cthe allocation of whole items of cost to cost centres or cost units\u201d. It refers to charging to the cost centre those overheads that have been incurred for that cost centre\u00a0in particular. It relates to\u00a0those\u00a0overheads which have been incurred because of the existence of that cost centre. For example, if canteen is treated as a separate cost centre, salary paid to canteen employees\u00a0can be allocated to canteen. If indirect wages and salaries are paid to the employees in each department, they can be wholly attributed to the concerned departments and charged accordingly. Similarly\u00a0separate meters are installed in departments, from meter reading, power ratings\u00a0for each department can be easily known and as such they are allocated to the concerned departments.<\/p>\n<p>Thus, we can say\u00a0that, an overhead can be allocated to a cost centre if the following two conditions are met:<\/p>\n<p>1) The overhead must have been incurred because of the presence\u00a0of that particular cost centre.<\/p>\n<p>2) The exact value\u00a0of overhead incurred in a cost centre must be known.<\/p>\n<h3><strong><b>Apportionment<\/b><\/strong><\/h3>\n<p>Apportionment refers to the distribution of common items of cost to 2 or more cost centres on some befitting basis. When the costs which are incurred for the factory as a whole and benefit 2\u00a0or more cost centres, then it is necessary to apportion them to various departments that receive benefit from such costs. For example, building rent benefits all the departments. Hence, it should be apportioned to all of them\u00a0on the basis of the floor area occupied by each department in the factory\u00a0building. The common factory overheads have to be apportioned to different\u00a0production and service departments in the factory on some just basis.<\/p>\n<p><strong><b>A production department<\/b><\/strong>\u00a0is one that involves\u00a0in the actual manufacture of the product. Eg.\u00a0of production departments are crushing, mining,\u00a0weaving, spinning, \u00a0grinding, etc.<\/p>\n<p><strong><b>A service department<\/b><\/strong>\u00a0is one which offers\u00a0a service that contributes indirectly in the production\u00a0of a product. It provides\u00a0service to the production as well as other service departments. Eg.\u00a0of service departments are stores, purchasing, time keeping, personnel inspection, etc.<\/p>\n<p style=\"text-align: center;\"><strong><a href=\"https:\/\/entri.sng.link\/Bcofz\/yv45\/8wer\" target=\"_blank\" rel=\"noopener\">Attempt free GK Mock Test! Download Entri App!<\/a><\/strong><strong><b>\u00a0<\/b><\/strong><\/p>\n<h3><strong><b>Principles of Apportionment<\/b><\/strong><\/h3>\n<p>As mentioned\u00a0earlier, the common factory overheads (common costs) have to be apportioned to respective production and service departments on some equitable basis. In deciding the basis to be adopted, the following guiding principles can be used:<\/p>\n<p>1)<strong><b>\u00a0Actual benefit<\/b><\/strong>: As per this principle, overheads are distributed over various departments on the basis of the actual benefit obtained. This can be adopted where it is possible to get\u00a0the actual benefit derived from a particular expense.<\/p>\n<p>For eg, rent can be apportioned to various\u00a0departments depending on the \u00a0area occupied. Similarly, machine shop expenses may be apportioned based on the\u00a0actual time devoted to each job for which proper job cards are maintained.<\/p>\n<p>2) <strong><b>Potential benefit<\/b><\/strong>: It would be perfect to distribute common costs on the basis of actual benefit received, but, in most cases, the measurement of actual benefit\u00a0is not possible or it may be too difficult to keep the necessary records. Hence, in such cases the apportionment may be done on the basis of potential benefit (benefit likely to be received).<\/p>\n<p>For example, if the\u00a0costs of lighting were to be apportioned on the basis of actual benefit received, you will have to keep record of the number of lighting points in every\u00a0department, the wattage of bulbs used at\u00a0every\u00a0lighting point, and the amount of time for which each bulb\u00a0was on. This is kind of impractical. Hence, lighting costs can be apportioned simply base on the number of\u00a0lighting points in every department. Similarly,transport cost for workers can be apportioned depending on\u00a0the number of employees in each department. This method is also known as\u00a0\u2018service or use\u2019 method.<\/p>\n<p>3) <strong><b>Specific criteria<\/b><\/strong>: According to this principle, the overheads can be apportioned to various\u00a0departments in a particular\u00a0ratio which may be determined after careful survey for different service functions. This method, therefore, is also known as \u2018survey method\u2019 and it is particularly useful where it is not easy\u00a0to select a suitable basis for apportionment.<\/p>\n<p>For example, for the apportionment of works manager\u2019s salary, it\u00a0may not be easy\u00a0to identify a suitable basis. Hence, a survey may be taken\u00a0to determine the time and attention given by him to various\u00a0cost centres and a reasonable ratio fixed for the purpose.<\/p>\n<p>4) <strong><b>Ability to pay<\/b><\/strong>: This method is based on the principle that larger the revenue of a department, the higher should be the proportionate charge for the services.<\/p>\n<p>For eg, the cost of maintaining stores may be apportioned to different production units\u00a0on the basis of the value (not the volume) of materials consumed.<\/p>\n<p style=\"text-align: center;\"><strong><a href=\"https:\/\/entri.sng.link\/Bcofz\/yv45\/8wer\" target=\"_blank\" rel=\"noopener\">Attempt free GK Mock Test! Download Entri App!<\/a><\/strong><strong><b>\u00a0<\/b><\/strong><\/p>\n<h3><strong><b>Basis of Apportionment<\/b><\/strong>:<\/h3>\n<p>As discussed above, the common \u00a0basis for apportioning usual\u00a0items of factory overhead can be as shown in the table below:<\/p>\n<table>\n<tbody>\n<tr>\n<td width=\"66\">SL. No<\/td>\n<td width=\"228\">Basis<\/td>\n<td width=\"273\">Expenses<\/td>\n<\/tr>\n<tr>\n<td width=\"66\">1.<\/td>\n<td width=\"228\">Floor area occupied<\/td>\n<td width=\"273\">Rent, Rates, and taxes, insurance, depreciation and repairs, fire precaution, air condition of buildings.<\/td>\n<\/tr>\n<tr>\n<td width=\"66\">2.<\/td>\n<td width=\"228\">No. of employees<\/td>\n<td width=\"273\">Canteen, welfare expenses, time keeping, personnel office, fringe benefits supervision.<\/td>\n<\/tr>\n<tr>\n<td width=\"66\">3.<\/td>\n<td width=\"228\">Capital cost of plant and machinery<\/td>\n<td width=\"273\">Depreciation, repairs &amp; maintenance and insurance to plant and machinery.<\/td>\n<\/tr>\n<tr>\n<td width=\"66\">4.<\/td>\n<td width=\"228\">Technical estimates (i.e. HP hours, number of light points)<\/td>\n<td width=\"273\">Power\/Steam consumption, lighting.<\/td>\n<\/tr>\n<tr>\n<td width=\"66\">5.<\/td>\n<td width=\"228\">Weight\/value of Materials<\/td>\n<td width=\"273\">Store keeping and material handling expenses.<\/td>\n<\/tr>\n<tr>\n<td width=\"66\">6.<\/td>\n<td width=\"228\">Number of requisitions, weight\/ Value of materials<\/td>\n<td width=\"273\">Internal transport.<\/td>\n<\/tr>\n<tr>\n<td width=\"66\">7.<\/td>\n<td width=\"228\">Direct wages<\/td>\n<td width=\"273\">Compensation to workers, ESI and PF contribution, holiday pay.<\/td>\n<\/tr>\n<tr>\n<td width=\"66\">8.<\/td>\n<td width=\"228\">Direct Labour hours or Machine hours or Direct wages<\/td>\n<td width=\"273\">General Overheads.<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p style=\"text-align: center;\"><a href=\"https:\/\/bit.ly\/3MWTnuS\" target=\"_blank\" rel=\"noopener\"><strong>Grab study materials to strengthen your GK !!! Register Now !!!<\/strong><\/a><\/p>\n<h3><strong><b>Preparation <\/b><\/strong><strong><b>o<\/b><\/strong><strong><b>f Overheads Distribution Summary<\/b><\/strong><\/h3>\n<p>The allocation and apportionment of overheads to production and service units\u00a0is also called\u2018departmentalisation or primary distribution of overheads\u2019. It is done by setting\u00a0up an overheads distribution summary. For the planning of overheads distribution summary, all those overheads which can be directly identified with a specific\u00a0department, will be taken\u00a0or\u00a0allocated to the concerned department and those which cannot be identified with a specific department will be apportioned i.e., distributed on equitable basis to \u00a0various departments.<\/p>\n<h4><strong><b>Re-Apportionment of Service Department Costs:<\/b><\/strong><\/h4>\n<p>Once the overheads have been allocated and apportioned to production and service units, the subsequent\u00a0step in overhead distribution is to re-apportion the service department total costs to production departments. As the eventual object is to charge the overhead to cost units, and no cost units pass through service units, it becomes necessary to apportion the service units\u00a0costs also to production units\u00a0on some equitable basis. This is called\u00a0secondary Distribution. The common basis of for apportionment of service units\u00a0costs to production units\u00a0(secondary distribution) are given below:<\/p>\n<table>\n<tbody>\n<tr>\n<td width=\"75\">Sl. No<\/td>\n<td width=\"180\">Department<\/td>\n<td width=\"312\">Basis of Apportionment<\/td>\n<\/tr>\n<tr>\n<td width=\"75\">1.<\/td>\n<td width=\"180\">Purchase<\/td>\n<td width=\"312\">No\u00a0of purchase orders or no\u00a0of purchase requisitions or value of materials purchased for every\u00a0departments<\/td>\n<\/tr>\n<tr>\n<td width=\"75\">2.<\/td>\n<td width=\"180\">Stores<\/td>\n<td width=\"312\">No\u00a0of material requisitions or value\u00a0or quantity of materials issued to each department.<\/td>\n<\/tr>\n<tr>\n<td width=\"75\">3.<\/td>\n<td width=\"180\">Time-keeping\u00a0and Pay roll<\/td>\n<td width=\"312\">No\u00a0of employees or total machine or labour\u00a0hours<\/td>\n<\/tr>\n<tr>\n<td width=\"75\">4.<\/td>\n<td width=\"180\">Personnel , canteen, welfare, medical, recreation and security<\/td>\n<td width=\"312\">No\u00a0of employees or total wages<\/td>\n<\/tr>\n<tr>\n<td width=\"75\">5.<\/td>\n<td width=\"180\">Repairs and maintenance<\/td>\n<td width=\"312\">No\u00a0of hours worked in each department<\/td>\n<\/tr>\n<tr>\n<td width=\"75\">6.<\/td>\n<td width=\"180\">Power House<\/td>\n<td width=\"312\">Meter reading or Horse Power\u00a0Hour for powers Meter reading or floor space for lighting, heat consumed<\/td>\n<\/tr>\n<tr>\n<td width=\"75\">7.<\/td>\n<td width=\"180\">Inspection<\/td>\n<td width=\"312\">Value of items inspected\u00a0or Inspection hours<\/td>\n<\/tr>\n<tr>\n<td width=\"75\">8.<\/td>\n<td width=\"180\">Drawing<\/td>\n<td width=\"312\">No\u00a0of drawings made or man\u00a0hours worked<\/td>\n<\/tr>\n<tr>\n<td width=\"75\">9.<\/td>\n<td width=\"180\">Accounts<\/td>\n<td width=\"312\">No\u00a0of workers in each department or time devoted<\/td>\n<\/tr>\n<tr>\n<td width=\"75\">10.<\/td>\n<td width=\"180\">Tool Room<\/td>\n<td width=\"312\">Wages or Machine hours or Direct labour<\/td>\n<\/tr>\n<tr>\n<td width=\"75\">11.<\/td>\n<td width=\"180\">Internal transport<\/td>\n<td width=\"312\">Distance or\/and weight<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p style=\"text-align: center;\"><strong><a href=\"https:\/\/entri.sng.link\/Bcofz\/yv45\/8wer\" target=\"_blank\" rel=\"noopener\">Attempt free GK Mock Test! Download Entri App!<\/a><\/strong><strong><b>\u00a0<\/b><\/strong><\/p>\n<h2><span class=\"ez-toc-section\" id=\"Methods_of_Apportionment\"><\/span><strong><b>Methods of Apportionment<\/b><\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>The following chart will explain you the different methods of apportionment of service department costs to production departments.<\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"wp-image-25531541 aligncenter\" src=\"https:\/\/entri.app\/blog\/wp-content\/uploads\/2022\/07\/flowxhart-300x200.png\" alt=\"\" width=\"619\" height=\"413\" srcset=\"https:\/\/entri.app\/blog\/wp-content\/uploads\/2022\/07\/flowxhart-300x200.png 300w, https:\/\/entri.app\/blog\/wp-content\/uploads\/2022\/07\/flowxhart.png 740w\" sizes=\"auto, (max-width: 619px) 100vw, 619px\" \/><\/p>\n<h3><strong><b>Apportionment of Service Department Costs to Production Departments <\/b><\/strong><\/h3>\n<p>Only Under this method, the costs of each service unit\u00a0is apportioned to production units\u00a0only without apportion to the other service department on the basis as decided.<\/p>\n<h3><strong><b>Apportionment to Production and Other Service Departments <\/b><\/strong><\/h3>\n<p>In the former method service department overheads are apportioned to production units\u00a0only but not apportioned to other service department as an assumption that service units are not consuming the services\u00a0of other service departments. Actually it is not true as service department provide\u00a0services not only to production units\u00a0but also to other service units. For instance, pay roll department not only provide services to production unit\u00a0but also provide services to canteen, stores, ,powerhouse, maintenance etc. \u00a0Similarly, canteen, provide\u00a0services not only to production units but also other service departments like power house pay roll, internal transport, store etc. Thus,apart from\u00a0production departments, inter-service department apportionment may be done under\u00a02\u00a0basis<\/p>\n<p>1) Non-reciprocal basis and<\/p>\n<p>2) Reciprocal basis.<\/p>\n<p>Now let us\u00a0learn about the apportionment under these 2\u00a0methods<\/p>\n<h4><strong><b>Non-Reciprocal Method of Apportionment<\/b><\/strong><\/h4>\n<p>This method is also called\u00a0\u201cStep Ladder Method\u201d. It is followed when the service unit\u00a0provide the services to other service departments but not receive the services from other service departments considerably. This method is used\u00a0when service departments are not inter-dependent in providing\u00a0services. Under this method, service units\u00a0are arranged in the following descending order: Take an eg that a factory is having 3\u00a0service departments. Among them, the service department which provide\u00a0services to other 2\u00a0service units\u00a0along with the production departments is placed at 1<sup>st<\/sup>\u00a0\u00a0and apportioned its overheads. Next, the service unit\u00a0which provides\u00a0services to the 3<sup>rd<\/sup>\u00a0service department and production departments excluding the 1<sup>st<\/sup>\u00a0\u00a0service department is place at second. The total overheads of their service department is apportioned finally to all production units (excluding 1<sup>st<\/sup>\u00a0\u00a0and 2<sup>nd<\/sup>\u00a0\u00a0service departments). It may be noted that the above process is continued till the cost of the final\u00a0service department is apportioned.<\/p>\n<p style=\"text-align: center;\"><strong><a href=\"https:\/\/entri.sng.link\/Bcofz\/yv45\/8wer\" target=\"_blank\" rel=\"noopener\">Attempt free GK Mock Test! Download Entri App!<\/a><\/strong><strong><b>\u00a0<\/b><\/strong><\/p>\n<h4><strong><b>Apportionment on Reciprocal Basis <\/b><\/strong><\/h4>\n<p>In most of the situations, the service departments not only render the services to other service departments besides production departments but also gets\u00a0the services from other service departments. For eg, \u2018Canteen\u2019 services are provided to\u00a0\u2018Power house\u2019 and \u2018Power house\u2019 services are taken\u00a0by canteen department. Reciprocal approach is more scientific when the service units\u00a0are inter &#8211; dependent on each other to provide\u00a0and receive the services. There are 3\u00a0following methods for apportionment of overhead costs on reciprocal basis.<\/p>\n<p>1) Simultaneous Equation Method<\/p>\n<p>2) Repeated Distribution Method<\/p>\n<p>3) Trial and Error Method<\/p>\n<p>Here we discuss only 1<sup>st<\/sup>\u00a0and 3<sup>rd<\/sup>\u00a0\u00a0methods for apportionment. Because 2<sup>nd<\/sup>\u00a0\u00a0method is same as the concept of 3<sup>rd<\/sup>\u00a0\u00a0method. Under the 2<sup>nd<\/sup>\u00a0\u00a0method repeated distribution will be done both service and production unit. On the other hand\u00a0under Trial and Error method, repeated distribution will be done 1<sup>st<\/sup>\u00a0\u00a0among service units only. Once it is completed the total overhead costs of service units will be lastly distributed to production departments. It is important to note that the distribution begins\u00a0as per the order of the arrangement of service departments.<\/p>\n<p><strong><b>Simultaneous Equation Method :<\/b><\/strong>\u00a0This method is formed with the help of the following algebraic equation to find out the total service units overhead costs. Then after apportionment will be done to production units.<\/p>\n<p>Equation:<\/p>\n<p>X = a + bY<\/p>\n<p>Y = a + bX<\/p>\n<p>Where; X = Total overhead costs of 1<sup>st<\/sup>\u00a0\u00a0Service Department<\/p>\n<p>Y = Total overhead costs of consequent\u00a0(second) Department<\/p>\n<p>a = Overheads of respective service unit\u00a0prior to\u00a0re-apportionment (as per primary distribution)<\/p>\n<p>b = Share of overheads of one service unit\u00a0to be apportioned to the other service unit.<\/p>\n<p><strong><b>Trail and Error Method:<\/b><\/strong><\/p>\n<p>When the Service department are more than 2, it gets complicated and messy in calculations under simultaneous equation method. This method cut down the complexities in calculations. Under this method, the overhead costs as per primary distribution of 1<sup>st<\/sup>\u00a0\u00a0service unit\u00a0is apportioned to other service units only in the decided percentages or ratios. Next the costs of 2<sup>nd<\/sup>\u00a0\u00a0service unit\u00a0is apportioned to 1<sup>st<\/sup>\u00a0and other service units. Next the cost of 3<sup>rd<\/sup>\u00a0\u00a0service department is apportioned to first, second and other service units and so on. This process is repeated till costs of service department reduced to minimal amounts. Since the distribution is repeated among the service units\u00a0only it is called trial and error method. Then after the distributed costs are summed \u00a0and proceed for preparation of secondary distribution to apportion the total overhead costs of service units to production units only as per given percentages or ratios.<\/p>\n<p style=\"text-align: center;\"><a href=\"https:\/\/bit.ly\/3MWTnuS\" target=\"_blank\" rel=\"noopener\"><strong>Grab study materials to strengthen your GK !!! Register Now !!!<\/strong><\/a><\/p>\n<h2><span class=\"ez-toc-section\" id=\"Summary\"><\/span><strong><b>Summary<\/b><\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>Overheads means\u00a0all indirect costs including indirect materials, labour and expenses. These can be distributed\u00a0according to the functions to which they relate and according to their variability in relation to the amount of output. Overheads are also taken into account\u00a0whi1e calculating the total cost per unit. But, they cannot be directly identified with certain\u00a0products. Hence, they are apportioned among different products in an indirect manner.The 1<sup>st<\/sup>\u00a0\u00a0step in overhead distribution is the collection of overheads (ascertainment of the total amount) under various standing order no.s. The next step is to apportion them to different\u00a0production and service departments on some suitable basis. The guiding principles of apportionment are:<\/p>\n<p>(i) actual benefit<\/p>\n<p>(ii) potential benefit<\/p>\n<p>(iii) specific benefit<\/p>\n<p>(iv) ability to pay.<\/p>\n<p>The 3<sup>rd<\/sup>\u00a0step is to re-apportion the cost of service departments to production departments to ease the distribution of overheads among different products manufactured in the factory.<\/p>\n<p style=\"text-align: center;\"><strong><a href=\"https:\/\/entri.sng.link\/Bcofz\/yv45\/8wer\" target=\"_blank\" rel=\"noopener\">Attempt free GK Mock Test! Download Entri App!<\/a><\/strong><strong><b>\u00a0<\/b><\/strong><\/p>\n<h2><span class=\"ez-toc-section\" id=\"Apportionment_Quiz\"><\/span><strong><b>Apportionment<\/b><\/strong><strong><b>: Quiz<\/b><\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><strong><b>\u00a01. <\/b><\/strong><strong><b>Indirect costs cannot be <\/b><\/strong><strong><b>recognised <\/b><\/strong><strong><b>with a particular cost centre are shared <\/b><\/strong><strong><b>among <\/b><\/strong><strong><b>cost centre using _____<\/b><\/strong><strong><b>.<\/b><\/strong><strong><b><br \/>\n<\/b><\/strong>a) apportionment method<br \/>\nb) allocation method<br \/>\nc) a recovery rate<br \/>\nd) None of the above<\/p>\n<p><strong><b>Ans: (a) apportionment method<\/b><\/strong><\/p>\n<p><strong><b>2. Charging overheads to individual units is <\/b><\/strong><strong><b>called<\/b><\/strong><strong><b>:<\/b><\/strong><strong><b><br \/>\n<\/b><\/strong>a) allocation<br \/>\nb) apportionment<br \/>\nc) absorption<br \/>\nd) collection<\/p>\n<p><strong><b>Ans: (d) absorption<\/b><\/strong><\/p>\n<p><b><\/b><strong><b>3. Electricity <\/b><\/strong><strong><b>bills <\/b><\/strong><strong><b>are allocated on the basis of _________<\/b><\/strong><strong><b>.<\/b><\/strong><strong><b><br \/>\n<\/b><\/strong>a) no of light points<br \/>\nb) cost per machines<br \/>\nc) labour hours<br \/>\nd) factory cost<\/p>\n<p><strong><b>Ans: (a) no of light points<\/b><\/strong><\/p>\n<p style=\"text-align: center;\"><strong><a href=\"https:\/\/entri.sng.link\/Bcofz\/yv45\/8wer\" target=\"_blank\" rel=\"noopener\">Attempt free GK Mock Test! Download Entri App!<\/a><\/strong><strong><b>\u00a0<\/b><\/strong><\/p>\n<p><strong><b>4. Employee welfare expenses are <\/b><\/strong><strong><b>provided<\/b><\/strong><strong><b>on the basis of ________<\/b><\/strong><strong><b>.<\/b><\/strong><strong><b><br \/>\n<\/b><\/strong>a) no of employees<br \/>\nb) labour hours<br \/>\nc) machine hours<br \/>\nd) prime cost<\/p>\n<p><strong><b>Ans: (a) no of employees<\/b><\/strong><\/p>\n<p><strong><b>5. Power is <\/b><\/strong><strong><b>given <\/b><\/strong><strong><b>on the basis of _______<\/b><\/strong><strong><b>.<\/b><\/strong><strong><b><br \/>\n<\/b><\/strong>a) Horse Power of machines<br \/>\nb) cost of machines<br \/>\nc) machine hours of machine<br \/>\nd)l abour hours<\/p>\n<p><strong><b>Ans: (<\/b><\/strong><strong><b>a) H<\/b><\/strong><strong><b>orse Power<\/b><\/strong><strong><b>\u00a0of machines<\/b><\/strong><\/p>\n<p><strong><b>6. Depreciation on a machine is apportioned <\/b><\/strong><strong><b>based on <\/b><\/strong><strong><b>_______<\/b><\/strong><strong><b>.<\/b><\/strong><strong><b><br \/>\n<\/b><\/strong>a) machine cost<br \/>\nb) machine hours<br \/>\nc) labour hours<br \/>\nd) labour cost<\/p>\n<p><strong><b>Ans: (<\/b><\/strong><strong><b>a)<\/b><\/strong><strong><b>\u00a0<\/b><\/strong><strong><b>machine cost<\/b><\/strong><strong><b>\u00a0<\/b><\/strong><\/p>\n<p><b><\/b><strong><b>7. Selling and distribution overheads are absorbed <\/b><\/strong><strong><b>based on <\/b><\/strong><strong><b>________<\/b><\/strong><strong><b>.<\/b><\/strong><strong><b><br \/>\n<\/b><\/strong>a) rate per unit<br \/>\nb) percentage on works cost<br \/>\nc) percentage on selling price<br \/>\nd) any of these<\/p>\n<p><strong><b>Ans: (d) any of these<\/b><\/strong><\/p>\n<p><strong><b>8. Administrative overheads are recovered as a<\/b><\/strong><strong><b>% <\/b><\/strong><strong><b>of __________<\/b><\/strong><strong><b><br \/>\n<\/b><\/strong>a) direct materials<br \/>\nb) prime cost<br \/>\nc) works cost<br \/>\nd) None of the above<\/p>\n<p><strong><b>Ans: (c) works cost<\/b><\/strong><\/p>\n<p><strong><b>9. The <\/b><\/strong><strong><b>allocatio<\/b><\/strong><strong><b>n of whole items of cost to cost unit is <\/b><\/strong><strong><b>known as <\/b><\/strong><strong><b>________<\/b><\/strong><strong><b><br \/>\n<\/b><\/strong>a) cost allocation<br \/>\nb) cost apportionment<br \/>\nc) cost classification<br \/>\nd) overhead absorption<\/p>\n<p><strong><b>Ans: (a) cost allocation<\/b><\/strong><\/p>\n<p><strong><b>10. The method of apportionment suitable for allocating rent of building between cost centres ________<\/b><\/strong><strong><b><br \/>\n<\/b><\/strong>a) number of employees<br \/>\nb) machine hours<br \/>\nc) KWH<br \/>\nd) floor area<\/p>\n<p><strong><b>Ans (d) floor area<\/b><\/strong><\/p>\n<p style=\"text-align: center;\"><a href=\"https:\/\/bit.ly\/3MWTnuS\" target=\"_blank\" rel=\"noopener\"><strong>Grab study materials to strengthen your GK !!! Register Now !!!<\/strong><\/a><\/p>\n<p><span data-preserver-spaces=\"true\">I hope this article was helpful. The key point to clear an exam lies in methodical and planned preparation. If you are a candidate who wants to pursue your dream career and looking for a good start, our\u00a0\u00a0<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/entri.sng.link\/Bcofz\/od54\/6blp\" target=\"_blank\" rel=\"noopener\"><strong><span data-preserver-spaces=\"true\">Entri app<\/span><\/strong><\/a><span data-preserver-spaces=\"true\"> has got it covered for you. Our team will help you with content and insights related to the topics of your concern. Subscribe to our app today and enrol yourself into various programmes our app offers. Tune in to the app to stay updated regarding various aspects of the subject you are interested in. Feel free to post any queries and doubts in the comment section. We will try our best to reach out. Push away all those self-doubts and negative thoughts. Try to have a clear vision. Ask yourself why you want this. Focus on the good and work hard. There is a saying that goes like this, Get up and set your shoulders to the wheel-how long is life for you? as you have come to this world leave some mark behind or where is the difference between your trees and stones they too come into existence decay and die. Each day is a precious gift bestowed upon us so make it count. Work on yourself. Stop procrastinating. Today is the day, hope for the best. 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This usually\u00a0applies\u00a0to a company\u2019s overheads as a\u00a0method to\u00a0calculate the correct costs, especially when the business is spread across various\u00a0departments, subsidiaries or countries of operation. In order to understand apportionment clearly one has [&hellip;]<\/p>\n","protected":false},"author":42,"featured_media":25531542,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[802,558],"tags":[],"class_list":["post-25531540","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-articles","category-general-knowledge"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v26.6 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Basis of Apportionment - Definition, Method and Pattern - Entri Blog<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/entri.app\/blog\/basis-of-apportionment\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Basis of Apportionment - Definition, Method and Pattern - Entri Blog\" \/>\n<meta property=\"og:description\" content=\"Apportionment is a common term used in accounting to describe the way a business separates and distributes a portion of its gross income. 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