What is allocation and apportionment of expenses?

Allocation of cost means a process in which the entire amount of overhead is charged to a specific cost center. Conversely, apportionment of the cost is needed when the cost cannot be allocated to a particular cost center. Instead, the cost is shared by two or more cost centers, as per the expected benefit received.

What are the four essential steps in cost allocation?

There are four major steps to allocating expenses:

  1. Determine program services and supporting activities.
  2. Determine direct and indirect expenses.
  3. Determine proper allocation methods for indirect expenses.
  4. Apply allocation methods to indirect expenses.

How do you allocate facility costs?

Basic Steps of Cost Allocation Identify shared facilities or support services. Identify the costs to be allocated. Determine the allocation factors/methodology to distribute the costs equitably. Allocate the costs.

What is expense apportionment?

“Apportionment” has a different meaning in real estate. It typically refers to the allocation of property expenses, such as maintenance, insurance, and taxes, between the buyer and seller at the time of a transaction that involves a piece of real estate.

Why is allocation and apportionment important?

It helps to determine the product cost and fix the price of a product. It helps to measure the effectiveness of a particular department or cost center. It helps to evaluate the profitability of a product line in multi-product business.

What is allocation in cost accounting?

Cost allocation is the distribution of one cost across multiple entities, business units, or cost centers. An example is when health insurance premiums are paid by the main corporate office but allocated to different branches or departments.

What is the cost allocation process?

Cost allocation is the process of identifying, aggregating, and assigning costs to cost objects. Examples of cost objects are a product, a research project, a customer, a sales region, and a department. Cost allocation is used for financial reporting purposes, to spread costs among departments or inventory items.

What is allocation process?

An allocation is the process of shifting overhead costs to cost objects, using a rational basis of allotment. Allocations are most commonly used to assign costs to produced goods, which then appear in the financial statements of a business in either the cost of goods sold or the inventory asset.

What is a cost allocation plan?

A cost allocation plan is an accounting report that calculates the agency-wide indirect costs to departments and funds that receive services from other departments.

What is the relationship between cost accumulation and cost allocation?

Cost Allocation is the other name of Cost Assignment. On the other hand, Cost Accumulation is a completely different concept. And here the focus and objective are to collect all costs/total costs of that product or service.

What are the methods of allocation of service department costs?

The direct method allocates costs of each of the service departments to each operating department based on each department’s share of the allocation base. Services used by other service departments are ignored. The second method of allocating service department costs is the step method.

What is allocation and apportionment in accounting?

Allocation and apportionment are accounting methods for attributing cost to specific cost objects. (A cost object is merely an item associated with a cost figure of its own). Under these methods, cost assignments rely on rules or formulas instead of measuring resource usage directly.

How do you calculate service charge apportionment?

In order to carry out the apportionment of the total service charge for the building, service charge practitioners need to select the right ‘apportionment method’. An apportionment method is the formula used to divide the landlord’s cost of managing the building between the residents in that building.

What do you mean by allocation of cost?

Thus allocation is a direct process of identifying overheads to cost units or cost centres. So the term allocation means allotment of whole item of cost to a particular cost centre or cost object without any division. Cost Apportionment 6 • Cost Apportionment is the allotment of proportions of items to cost centers.