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BASES OF APPORTIONMENT

Suitable bases have to be found out for apportioning the items of overhead

cost to production & service departments & then for reapportionment of service departments costs to

other service & production departments. The basis adopted should be such by which the expenses being

apportioned must be measurable by the basis adopted & there must be proper correlation between the

expenses & the basis. So the common expenses have to be apportioned or distributed over the

departments on some equitable basis. The process of distribution is usually known as primary

distribution. The following are the main basis of overhead apportionment utilized in manufacturing

concerns.

1. DIRECT ALLOCATIONOverhead are directly allocated to various departments on the basis of

expenses for each department respectively. Examples are overtime premium of workers

engaged in a particular department, power, when separate meters are available, jobbing repairs

etc.

2. DIRECT LABOUR HOURSThe overhead expenses are distributed to various departments in the ratio of

total number of labour hours worked in each department according to this basis. For example,

administrative salaries & particularly salaries of the supervisors are apportioned on the basis of

labour hours worked. This is so because time is an element of cost in these cases.

3. DIRECT WAGESAccording to this basis, expenses are distributed amongest the departments in

the ratio of direct wage bills of the various departments. This method is used only for thoseitems of expenses which are booked with the amount of wages e.g; workers insurance, their

contribution to provident fund, workers compensation etc.

4. NUMBER OF WORKERSThe total number of workers working in each department is taken as a basis

for apportioning overhead expenses amongst departments. Where the expenditure depends

more on the number of employees than on wage bill or number of canteen expenses, welfare &

recreation expenses, time keeping, medical expenses etc.

5. RELATIVE AREAS OF DEPARTMENTSThis basis is adopted for the apportionment of expenses like lighting & heating,

rent, rates, taxes on building, air conditioning etc.

6. CAPITAL VALUESThe capital value of certain assets like machinery & building are used as basis for the

apportionment of certain expenses under this basis. Examples are rates, taxes, depreciation, insurance

charges of the building etc.

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7. LIGHT POINTSThis is used for apportioning lighting expenses.

8. KILOWATT HOURSThis basis is used for the apportionment of power expenses.

9. TECHNICAL ESTIMATESThis basis of apportionment is used for the apportionment of these expenses for

which it is difficult to find out any other basis of apportionment. An assessment of the equitable

proportion is carried out by technical experts. This is used for distributing works manager salary,

internal transport, steam water etc. When these are used for processes.

On the basis of above, a table showing the various items of overhead cost & their basis of

distribution is given as under:

No. OVERHEAD COST BASIS OF DISTRIBUTION

01. Canteen expenses, time-keeping,

general welfare expenses,

compensation & other fringe

benefits & employees state

Insurance, contribution of

employer.

Number of employees or wages for each

department.

02. Depreciation of plants, machinery &

equipments, fire insurance.

Capital values.

03. Electric light. No. of light points, floor space, hours used, no. of

watts if separate meters are available.

04. Electric power. Horse power, horse power multiplied by hours,K.W.H.

05. Steam. Passed on a consumption return or on potential

consumption.

06. Heating air-conditioning, rent, five

precaution expenses.

Relative areas or volume of departments.

07. Delivery expenses. Weight, volume, ton-mile.

08. Tabulation. Hours used, number of cards punched etc.

09. Audit fees. Sales or total cost.

10. Transport service expenses. Crane hours, Truck hours, Truck mileage, Truck

tonnage, Truck tone-hours, Tonnage handled,

Number of package.11.