Cost Apportionment of General Overhead

Cost apportionment or overhead apportionment is used to distribute general overheads which relate to more than one cost center, between cost centers.

Difference Between Cost Allocation and Cost Apportionment

In order to understand cost apportionment, it is necessary to distinguish it from cost allocation, which is used to allocate overhead that is specifically identified with a cost center to that cost center, and cost absorption, which is the addition of allocated and apportioned costs to unit, job, or batch costs.

The diagram below summarizes the how cost apportionment differs from allocation and absorption.

cost allocation

In the diagram, the overhead cost which has previously been allocated to the general overhead cost center, is apportioned between the two production departments shown as the manufacturing and finishing departments. The costs from the manufacturing and finishing departments are then absorbed into the production units.

Cost Apportionment Base

A cost apportionment base is the basis used by a business to apportion its overhead costs. The apportionment base is usually a quantity such as the floor area of a department, book value of machinery, number of employees, machine hours used, or kilowatt hours of electricity used.

The base used should be appropriate for the overhead cost to ensure that the cost is fairly apportioned between cost centers. For example, personnel costs might be included in general overhead and then be apportioned to other departments based on the number of employees in that department, or depreciation might be apportioned based on the book value of machines used within a department.

The overhead cost is then apportioned using the following formula for each base.

Apportionment = Overhead cost x Department base quantity / Total base quantity

Cost Apportionment Example

A business operates four cost centers manufacturing, finishing, service and general overhead. Overheads are allocated to each department and subsequently the general overhead is apportioned to both the production and finishing departments using an appropriate base.

1. Identify the General Overhead

General overheads are costs which cannot be directly allocated to a specific cost center or department. For example, the salary cost of a manufacturing department supervisor can be directly allocated to the manufacturing department, and for the purpose of this exercise is therefore not regarded general overhead. On the other hand, the insurance cost for the premises cannot be directly allocated to one department and is therefore included in general overheads to be apportioned between departments.

During the accounting period the business incurs the following general overhead costs.

General overheads
Cost Amount
Electricity 9,000
Repairs 4,300
Depreciation 24,000
Rent and insurance 36,500
Staff canteen 7,000
Staff training 4,000
Total 84,800

2. Decide on the Apportionment Base

The general overhead costs are each assigned an appropriate apportionment base as follows.

Cost Apportionment Base
Cost Base
Electricity Kilowatt hours
Building repairs Floor area
Depreciation Machine book value
Rent and insurance Floor area
Staff canteen costs Employees
Staff training Employees

3. Collect Base Information for Each Department

In this example, the administrative overhead totaling 22,000 is to be apportioned to the production and finishing departments using the appropriate base.

During the period the following information was recorded for the production and finishing departments.

Department Base Information
Base Manufacturing Finishing Service
Floor area 4,000 3,000 1,500
Machine book value 35,000 20,000 9,000
Number of employees 28 22 15
Kilowatt hours 45,000 26,000 19,000

4. Apportion the Overhead to Departments

Using the departmental information, the cost apportioned to each department can be calculated using the formula above.

Apportionment = Cost x Department kWh / Total kWh
Manufacturing = 9,000 x 45,000 / 90,000 = 4,500
Finishing = 9,000 x 26,000 / 90,000 = 2,600
Servicing = 9,000 x 19,000 / 90,000 = 1,900
Building repairs
Apportionment = Cost x Department floor area / Total floor area
Manufacturing = 4,300 x 4,000 / 8,500 = 2,024
Finishing = 4,300 x 3,000 / 8,500 = 1,518
Servicing = 4,300 x 1,500 / 8,500 = 759

Apportionment = Cost x Department machinery value / Total machinery value
Manufacturing = 24,000 x 35,000 / 64,000 = 13,125
Finishing = 24,000 x 20,000 / 64,000 = 7,500
Servicing = 24,000 x 9,000 / 64,000 = 3,375

Rent and insurance
Apportionment = Cost x Department floor area / Total floor area
Manufacturing = 36,500 x 4,000 / 8,500 =17,176
Finishing = 36,500 x 3,000 / 8,500 = 12,882
Servicing = 36,500 x 1,500 / 8,500 = 6,441

Staff canteen costs
Apportionment = Cost x Department employees / Total employees
Manufacturing = 7,000 x 28 / 65 = 3,015
Finishing = 7,000 x 22 / 65 = 2,369
Servicing = 7,000 x 15 / 65 = 1,615

Staff training
Apportionment = Cost x Department employees / Total employees
Manufacturing = 4,000 x 28 / 65 = 1,723
Finishing = 4,000 x 22 / 65 = 1,354
Servicing = 4,000 x 15 / 65 = 923


The table below summarizes the apportionment of the general overheads to each department based on the calculations shown above.

Apportioned General Overhead
Overhead Manufacturing Finishing Service
Electricity 4,500 2,600 1,900
Building repairs 2,204 1,518 759
Depreciation 13,125 7,500 3,375
Rent and insurance 17,176 12,882 6,441
Staff canteen 3,015 2,369 1,615
Staff training 1,723 1,354 923
Total 41,563 28,223 15,013

The general overhead cost (84,800) has now been apportioned to the manufacturing (41,563), finishing (28,223), and servicing (15,013) departments.

Our overhead apportionment calculator can be used to apportion overheads between cost centers by entering details of the amount of overhead and the apportionment base for up to eight overhead types and six departments.

Last modified August 3rd, 2020 by Michael Brown

About the Author

Chartered accountant Michael Brown is the founder and CEO of Double Entry Bookkeeping. He has worked as an accountant and consultant for more than 25 years and has built financial models for all types of industries. He has been the CFO or controller of both small and medium sized companies and has run small businesses of his own. He has been a manager and an auditor with Deloitte, a big 4 accountancy firm, and holds a degree from Loughborough University.

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