Q61. What is apportionment of overhead? What are the criteria for apportionment of overhead?
Ans. Some expenses cannot be identified with a particular department. These are incurred jointly. These have to be apportioning between departments using a suitable basis of distribution. It is called apportionment of overhead.
Some of the criteria of such apportionment are as follows:
- First criteria are service or use criteria. Expenses should be apportion between all departments in the ratio in which use of expenses are enjoying by all departments.
- Second criteria is analysis or survey. Survey is conducted for finding out to the benefit out which all the department enjoy by such expenses and then such expenses are divided tin search benefit ratio.
- Third criteria are ability to pay. As per such criteria a department which has high ability to pay should be charged high expense and vice versa.
- Such criteria are efficiency or incentive. An expense should be charged from all department in such a way so as to maintain all round efficiency or incentive entered there is no overburden on few departments.