Overhead allocation
Overhead allocation assigns an entire overhead item to the cost centre or cost object responsible for it. This differs from apportionment, which divides a shared item among several centres. After allocation and apportionment, service-centre costs may be reapportioned to production centres and then absorbed into units. Using the word allocation for every cost assignment can hide these distinct stages, so identify exactly what is being done.
Worked example
A factory supervisor works only in department A and costs $4,000 monthly. Allocate all $4,000 to A; divide shared factory rent separately.
Common mistake
Sharing factory rent by floor area is apportionment, not allocation of the entire item to one centre.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | MA | Direct | September 2026–June 2027 |
| FIA | FMA | Direct | September 2026–June 2027 |