Why is "Confusing a cost centre with a cost unit" a common mistake in Allocation & Apportionment of Overheads?

Why it happens: The two terms sound similar. How to avoid it: A cost centre collects costs (a department); a cost unit absorbs them (one unit of output). Source: 9706 Examiner Reports

Why is "Applying a single basis (e.g. floor area) to every overhead" a common mistake in Allocation & Apportionment of Overheads?

Why it happens: It is quicker than choosing a basis for each. How to avoid it: Each overhead uses its OWN basis reflecting its cause — rent by area, depreciation by asset value, canteen by employees. Source: 9706 Examiner Reports

Why is "Forgetting to reapportion service departments" a common mistake in Allocation & Apportionment of Overheads?

Why it happens: Stopping after allocation and apportionment. How to avoid it: All overheads must end up in the production departments; reapportion every service department fully. Source: 9706 Examiner Reports

Why is "Changing the total overhead when reapportioning" a common mistake in Allocation & Apportionment of Overheads?

Why it happens: Treating reapportionment as adding new cost. How to avoid it: Reapportionment only MOVES cost between departments — the grand total is unchanged. Check it cross-casts. Source: 9706 Examiner Reports

Why is "Apportioning on the wrong ratio or in the wrong department order" a common mistake in Allocation & Apportionment of Overheads?

Why it happens: Reading the bases carelessly. How to avoid it: Write the basis as a ratio in department order and apply it carefully; check the shares add back to the total. Source: 9706 Examiner Reports

Why is "Allocating a shared cost wholly to one department" a common mistake in Allocation & Apportionment of Overheads?

Why it happens: Misreading which costs belong to one centre. How to avoid it: Only allocate costs that relate wholly to one centre; shared costs must be apportioned on a basis. Source: 9706 Examiner Reports

Cambridge International A Levels Accounting (9706)

Allocation & Apportionment of Overheads

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Detailed Study Notes

Detailed notes on Absorption Costing for Cambridge International A Levels Accounting, covering key concepts, explanations, examples, and exam-focused revision points.

Allocation & Apportionment of Overheads — Cambridge AS & A Level Accounting 9706 Study Notes (2026-2028)

Sharing factory overheads fairly between departments. Learn the difference between a cost centre and a cost unit, how to allocate and apportion overheads to production and service departments, and how to reapportion service-department costs — the first stage of absorption costing.

At a glance

Cost centre: a department/location to which costs are charged. Cost unit: a single unit of output that absorbs cost.
Allocation: charging a whole overhead to one cost centre it relates to.
Apportionment: sharing a shared overhead between cost centres on a fair basis.
Bases of apportionment: rent by floor area; depreciation by asset value; canteen by number of employees, etc.
Reapportionment: sharing service-department overheads to the production departments that use them.
After reapportionment, all overheads sit in the production departments, ready to be absorbed into units.
This is stage 1 of absorption costing (stage 2 = overhead absorption rates).

What you’ll learn

Mapped to the Cambridge International A Level 9706 syllabus (2026-2028).

2.2.2 — Understand the difference between a cost centre and a cost unit.
2.2.2 — Allocate and apportion overhead expenditure between production and service departments.
Reapportion service-department overheads to production departments.

Cost centres and cost units

A cost centre collects costs; a cost unit absorbs them.

Two key terms underpin absorption costing:

A cost centre is a department, location or function to which costs are charged and collected — for example the machining department, the assembly department, or a service department like the canteen or maintenance.
A cost unit is a single unit of output to which costs are eventually charged — for example one table, one batch of bread, or (in a service business) one job or one hour.

The whole point of absorption costing is to gather overheads into cost centres (this subtopic) and then charge them onto cost units (the next subtopic, via overhead absorption rates). So costs flow: overheads → cost centres → cost units.

Cost centre = a department/location that collects costs.
Cost unit = a single unit of output that absorbs cost.
Overheads flow: overheads → cost centres → cost units.
This subtopic gathers overheads into cost centres.

See the full worked example for allocation & apportionment of overheads →

Allocation vs apportionment

Allocate a whole cost to one centre; apportion a shared cost between centres.

Overheads are charged to cost centres in two ways:

Allocation: a whole overhead is charged to the one cost centre to which it wholly relates. For example, the salary of the machining-department supervisor is allocated entirely to the machining department.
Apportionment: a shared overhead (used by several centres) is divided fairly between them using an appropriate basis. For example, factory rent is apportioned by floor area.

Common bases of apportionment:

Overhead	Fair basis
Rent, rates, heating, lighting	Floor area (m²)
Machinery depreciation, insurance	Value of machinery
Canteen, supervision, personnel	Number of employees
Power	Machine hours / kWh

The aim is to charge each cost centre a fair share of every overhead, reflecting how much of it each centre actually causes or uses.

Allocation: a whole overhead → one cost centre.
Apportionment: a shared overhead split between centres on a fair basis.
Rent by floor area; depreciation by asset value; canteen by employees.
The basis should reflect what causes/uses the overhead.

See the full worked example for allocation & apportionment of overheads →

Reapportioning service-department overheads

Share service-department costs to the production departments that use them.

A factory has production departments (that make the product) and service departments (e.g. maintenance, stores, canteen) that support them. Service departments do not make the product, so their overheads must be reapportioned to the production departments that use their services.

Example. The maintenance department's total overhead is reapportioned to the production departments based on the machine hours (or maintenance hours) each uses.

Service department	Typical reapportionment basis
Maintenance	Maintenance/machine hours used
Stores	Number of stores requisitions / value of materials
Canteen	Number of employees

After reapportionment, all the factory overheads sit in the production departments, ready to be absorbed into cost units (the next subtopic). Where service departments serve each other, the syllabus expects a reasonable method to share these costs out.

Production departments make the product; service departments support them.
Reapportion service-department overheads to production departments.
Bases: maintenance hours, stores requisitions, employees, etc.
After reapportionment, all overheads sit in the production departments.

See the full worked example for allocation & apportionment of overheads →

Why share overheads at all?

To find a full cost per unit for pricing and inventory valuation.

Sharing overheads fairly matters because the business needs a full cost per unit:

to set a selling price that covers all costs (not just direct costs);
to value inventory at full production cost (required for the financial statements);
to measure the profitability of each product or department.

Judgement is involved. The choice of basis is a judgement — different bases give different department costs and so different unit costs. A poorly chosen basis can distort product costs and lead to mispricing. This subjectivity is one of the limitations of absorption costing (a later subtopic), and is why some businesses prefer activity-based costing (ABC) for more accurate sharing.

Full cost per unit needed for pricing, inventory valuation and profitability.
The choice of apportionment basis is a judgement.
A poor basis distorts product costs and pricing.
This subjectivity is a key limitation of absorption costing (vs ABC).

Quick recap

Cost centre = a department that collects costs; cost unit = a unit of output that absorbs cost.
Allocation: a whole overhead → one cost centre.
Apportionment: a shared overhead split between centres on a fair basis (rent by area, etc.).
Reapportion service-department overheads to the production departments that use them.
After reapportionment, all overheads sit in the production departments.
The aim is a full cost per unit for pricing, inventory valuation and profitability.

Memorise this

Verbatim phrases and definitions Cambridge mark schemes credit.

Allocation = a whole overhead to ONE cost centre; apportionment = SHARE a cost between centres on a fair basis.
Bases: rent by floor area; depreciation by asset value; canteen by employees; power by machine hours.
Reapportion service-department overheads to production departments.
After reapportionment, all overheads sit in the production departments (ready to be absorbed).

How it’s examined

Tested on Paper 4: prepare an overhead analysis sheet — allocate and apportion overheads to departments, then reapportion service departments to production (commonly [6-10] marks). Examiner reports note candidates using the wrong basis or failing to reapportion service departments fully.

Sources: Cambridge International AS & A Level Accounting 9706 syllabus (2026-2028); 9706 Paper 4 past papers & mark schemes, 2022-2024; 9706 Examiner Reports, 2022-2024. Last reviewed 2026-06-18.

Take this whole topic with you

Step-by-step worked examples — Allocation & Apportionment of Overheads

Step-by-step solutions to past-paper-style questions on allocation & apportionment of overheads, written exactly the way a tutor would explain them at the board.

Question type:

1Cost centre vs cost unit (3 marks)
Getting startedIdentify & classify• 9706 Paper 4 style• cost centre, cost unit, AO1
Question
A furniture factory has a machining department, an assembly department and a canteen, and makes wooden tables. Identify the cost centres and the cost unit, and state the difference. (3 marks)
Step-by-step solution
1. Step 1
  Cost centres: the machining department, the assembly department and the canteen — each is a department to which costs are charged and collected.
2. Step 2
  Cost unit: one wooden table — the single unit of output that absorbs cost.
3. Step 3
  Difference: a cost centre collects overheads; a cost unit absorbs them.
Answer
Cost centres: machining, assembly, canteen. Cost unit: one table. The centre collects costs; the unit absorbs them.
Examiner tip
The canteen is a (service) cost centre even though it makes no tables.
2Allocate or apportion? (3 marks)
Getting startedIdentify & classify• allocation, apportionment, AO1
Question
State whether each is allocated or apportioned, and why: (a) the machining-department supervisor's salary; (b) factory rent; (c) depreciation of machinery shared across departments. (3 marks)
Step-by-step solution
1. Step 1
  (a) Supervisor's salary → allocated to machining — it relates wholly to one cost centre.
2. Step 2
  (b) Factory rent → apportioned on floor area — a shared overhead.
3. Step 3
  (c) Machinery depreciation → apportioned on the value of machinery — a shared overhead.
Answer
(a) allocate; (b) apportion (floor area); (c) apportion (machinery value).
Examiner tip
Allocation = whole cost to one centre; apportionment = shared cost split on a basis.
3Choosing the basis of apportionment (5 marks)
Getting startedIdentify & classify• bases, apportionment, AO1
Question
State the most appropriate basis of apportionment for: rent; heating; canteen costs; machinery insurance; power. (5 marks)
Step-by-step solution
1. Step 1
  Rent → floor area.
2. Step 2
  Heating → floor area (or volume).
3. Step 3
  Canteen costs → number of employees.
4. Step 4
  Machinery insurance → value of machinery.
5. Step 5
  Power → machine hours (or kWh). The basis should reflect what causes/uses the overhead.
Answer
Rent: floor area; heating: floor area; canteen: employees; insurance: machinery value; power: machine hours.
Examiner tip
Accept any reasonable basis with justification.
4Apportion rent by floor area (4 marks)
Building confidenceMulti-step problem• apportionment, floor area, AO2
Question
Factory rent is $24,000. Floor areas: Machining 3,000 m², Assembly 2,000 m², Stores 1,000 m². Apportion the rent. (4 marks)
Step-by-step solution
1. Step 1
  Total floor area = 3,000 + 2,000 + 1,000 = 6,000 m².
2. Step 2
  Rate = 24,000 ÷ 6,000 = $4 per m².
3. Step 3
  Machining = 3,000 × 4 = $12,000; Assembly = 2,000 × 4 = $8,000; Stores = 1,000 × 4 = $4,000.
4. Step 4
  Check: 12,000 + 8,000 + 4,000 = 24,000 ✓.
Answer
Machining $12,000; Assembly$ 8,000; Stores $4,000.
Examiner tip
Method mark for the ratio; own-figure marks for each share. Shares must add back to the total.
5Apportion several overheads at once (6 marks)
Building confidenceMulti-step problem• apportionment, analysis sheet, AO2
Question
Apportion between Machining and Assembly. Rent $18,000 (floor area 2:1); machinery depreciation$ 10,000 (machinery value 4:1); canteen $6,000 (employees 1:2). (6 marks)
Step-by-step solution
1. Step 1
  Rent 2:1 → Machining = 18,000 × 2/3 = $12,000; Assembly = $6,000.
2. Step 2
  Depreciation 4:1 → Machining = 10,000 × 4/5 = $8,000; Assembly = $2,000.
3. Step 3
  Canteen 1:2 → Machining = 6,000 × 1/3 = $2,000; Assembly = $4,000.
4. Step 4
  Totals: Machining = 12,000 + 8,000 + 2,000 = $22,000; Assembly = 6,000 + 2,000 + 4,000 = $12,000.
Answer
Machining $22,000; Assembly$ 12,000 (total $34,000).
Examiner tip
Each overhead uses its OWN basis — never apply one ratio to everything.
6Build a small overhead analysis sheet (6 marks)
Building confidenceMulti-step problem• analysis sheet, apportionment, AO2
Question
Prepare an overhead analysis sheet for P1, P2 (production) and Stores (service). Allocated: P1 $15,000, P2$ 9,000, Stores $4,000. Rent$ 12,000 apportioned by floor area 3:2:1 (P1:P2:Stores). Show the sub-totals before reapportionment. (6 marks)
Step-by-step solution
1. Step 1
  Enter allocated overheads: P1 15,000; P2 9,000; Stores 4,000.
2. Step 2
  Apportion rent 3:2:1 (total 6): P1 = 12,000 × 3/6 = 6,000; P2 = 4,000; Stores = 2,000.
3. Step 3
  Sub-totals: P1 = 21,000; P2 = 13,000; Stores = 6,000 (total 40,000).
Answer
Before reapportioning Stores: P1 $21,000, P2$ 13,000, Stores $6,000.
Examiner tip
Lay it out as a grid: a column per department, a row per overhead. The Stores total is reapportioned next.
7Reapportion one service department (5 marks)
StretchMulti-step problem• reapportionment, service department, AO2
Question
Continuing the sheet, Stores' $6,000 is reapportioned to P1 and P2 on materials requisitions: P1 made 450, P2 made 150. Complete the sheet. (5 marks)
Step-by-step solution
1. Step 1
  Requisitions ratio = 450 : 150 = 3 : 1 (total 4).
2. Step 2
  Reapportion Stores 6,000: P1 = 6,000 × 3/4 = 4,500; P2 = 6,000 × 1/4 = 1,500.
3. Step 3
  Final: P1 = 21,000 + 4,500 = $25,500; P2 = 13,000 + 1,500 = $14,500.
4. Step 4
  Check: 25,500 + 14,500 = 40,000 (unchanged) ✓.
Answer
P1 $25,500; P2$ 14,500 (total still $40,000).
Examiner tip
After reapportionment the service column is zero and ALL overhead sits in the production departments.
8Two service departments — direct method (6 marks)
StretchMulti-step problem• reapportionment, two service departments, AO2
Question
P1 and P2 hold $30,000 and$ 22,000. Reapportion Maintenance $8,000 (P1:P2 = 60%:40%) and Stores$ 5,000 (P1:P2 = 30%:70%), ignoring service-to-service work. Find final production totals. (6 marks)
Step-by-step solution
1. Step 1
  Maintenance $8,000: P1 = 4,800 (60%); P2 = 3,200 (40%).
2. Step 2
  Stores $5,000: P1 = 1,500 (30%); P2 = 3,500 (70%).
3. Step 3
  P1 = 30,000 + 4,800 + 1,500 = $36,300; P2 = 22,000 + 3,200 + 3,500 = $28,700.
4. Step 4
  Check: 36,300 + 28,700 = 65,000 = 30,000 + 22,000 + 8,000 + 5,000 ✓.
Answer
P1 $36,300; P2$ 28,700.
Examiner tip
Direct method: each service department goes straight to production; the total is unchanged.
9Service departments serving each other (7 marks)
StretchMulti-step problem• step-down, reciprocal, AO2
Question
Maintenance $9,000 is used P1 50%, P2 30%, Stores 20%. Stores is then used P1 40%, P2 60%. Stores' own overhead is$ 6,000. P1 and P2 hold $40,000 and$ 35,000. Reapportion Maintenance first, then Stores. (7 marks)
Step-by-step solution
1. Step 1
  Reapportion Maintenance $9,000: P1 = 4,500 (50%); P2 = 2,700 (30%); Stores = 1,800 (20%).
2. Step 2
  New Stores total = 6,000 + 1,800 = $7,800.
3. Step 3
  Reapportion Stores $7,800 (40%:60%): P1 = 3,120; P2 = 4,680.
4. Step 4
  Final: P1 = 40,000 + 4,500 + 3,120 = $47,620; P2 = 35,000 + 2,700 + 4,680 = $42,380.
5. Step 5
  Check: 47,620 + 42,380 = 90,000 ✓ (unchanged).
Answer
P1 $47,620; P2$ 42,380.
Examiner tip
Step-down: reapportion the service department that serves the other first, so the second carries the extra it received.
10Why the choice of basis matters (4 marks)
StretchWord problem• evaluation, limitations, AO3
Question
A manager apportions ALL overheads on floor area for simplicity. Explain one problem this could cause for product costing. (4 marks)
Step-by-step solution
1. Step 1
  Floor area does not reflect what causes every overhead — e.g. machinery insurance is driven by machinery value, canteen cost by headcount.
2. Step 2
  A department with little machinery but a large floor is over-charged with insurance, and a machinery-heavy one is under-charged.
3. Step 3
  Department/product costs are therefore distorted, so the full cost per unit is wrong.
4. Step 4
  This leads to mispricing — over-pricing one product and under-pricing another.
Answer
Using one basis for all overheads ignores the real cause of each, distorting unit costs and so the selling price.
Examiner tip
Reward the chain: wrong basis → distorted unit cost → mispricing. Links to ABC and absorption-costing limitations.

Model Answers — Allocation & Apportionment of Overheads

High-scoring sample answers for allocation & apportionment of overheads on the Cambridge IGCSE paper, with examiner-style notes mapping each response to the mark scheme and assessment objectives.

Question 1
9706 Paper 4 style4 marks
Q (4 marks). Distinguish between a cost centre and a cost unit, giving one example of each.
Model answer
A cost centre is a department, location or function to which costs are charged and collected — for example a machining department. A cost unit is a single unit of output to which costs are eventually charged — for example one table. The centre collects overheads; the unit absorbs them.
Why this scores
Marking (point-based, 4). 1 per definition + 1 per valid example. Accept any sensible examples (e.g. a job/hour as a cost unit).
Question 2
9706 Paper 4 style4 marks
Q (4 marks). Explain the difference between the allocation and the apportionment of overheads.
Model answer
Allocation is charging a whole overhead to the one cost centre to which it wholly relates, e.g. a department supervisor's salary to that department. Apportionment is sharing an overhead used by several cost centres between them on a fair basis, e.g. factory rent split by floor area.
Why this scores
Marking (point-based, 4). Definition + example for each term. Key contrast: 'whole cost to one centre' vs 'shared cost on a basis'.
Question 3
9706 Paper 4 style6 marks
Q (6 marks). State a suitable basis of apportionment for each overhead and justify your choice: (a) rent; (b) canteen costs; (c) machinery insurance.
Model answer
(a) Rent → floor area: rent is paid for space, so a department using more floor area should bear more. (b) Canteen costs → number of employees: the canteen serves staff, so cost should follow headcount. (c) Machinery insurance → value of machinery: the premium reflects the value of assets insured, so departments with more valuable machinery bear more.
Why this scores
Marking (point-based, 6). 1 for the basis + 1 for the justification, each part. The justification must link the basis to the cause of the overhead.
Question 4
9706 Paper 4 style4 marks
Q (4 marks). Insurance of $15,000 is apportioned on the value of machinery: Machining$ 120,000, Assembly $60,000, Finishing$ 20,000. Calculate each department's share.
Model answer
Total machinery = 120,000 + 60,000 + 20,000 = $200,000. Rate = 15,000 ÷ 200,000 = $0.075 per $1. Machining = 120,000 × 0.075 = $9,000; Assembly = 60,000 × 0.075 = $4,500; Finishing = 20,000 × 0.075 = $1,500. (Check: 9,000 + 4,500 + 1,500 = 15,000 ✓.)
Why this scores
Marking (point-based, 4). Method mark for the ratio (6:3:1); own-figure marks for each share.
Question 5
9706 Paper 4 style4 marks
Q (4 marks). P1 and P2 hold $26,000 and$ 18,000 of overhead. A maintenance department's $12,000 is reapportioned on machine hours: P1 6,000 hours, P2 2,000 hours. Calculate the final overhead in each production department.
Model answer
Machine-hours ratio = 6,000 : 2,000 = 3 : 1. Maintenance: P1 = 12,000 × 3/4 = $9,000; P2 = 12,000 × 1/4 = $3,000. Final: P1 = 26,000 + 9,000 = $35,000; P2 = 18,000 + 3,000 = $21,000. (Check: 35,000 + 21,000 = 56,000 = 26,000 + 18,000 + 12,000 ✓.)
Why this scores
Marking (point-based, 4). Ratio, each reapportioned share and the final totals. Reapportionment never changes the grand total.
Question 6
9706 Paper 4 style4 marks
Q (4 marks). Explain why the overheads of a service department must be reapportioned to the production departments.
Model answer
A service department (e.g. maintenance or stores) does not make the product, so its overheads cannot be absorbed directly into cost units. To find a full cost per unit, all overheads must end up in the production departments that actually make the product. Reapportionment shares the service cost to the production departments that use its services, on a fair basis.
Why this scores
Marking (point-based, 4). Service makes no product → can't absorb directly → need full cost → so share to production departments that use it.
Question 7
9706 Paper 4 style8 marks
Q (8 marks). Prepare an overhead analysis sheet. Allocated: P1 $20,000, P2$ 16,000, Stores $5,000. Rent$ 18,000 apportioned by floor area 4:3:2 (P1:P2:Stores). Then reapportion Stores to P1 and P2 on requisitions 2:1.
Model answer
Rent 4:3:2 (total 9): P1 = 18,000 × 4/9 = 8,000; P2 = 6,000; Stores = 4,000. Sub-totals: P1 = 20,000 + 8,000 = 28,000; P2 = 16,000 + 6,000 = 22,000; Stores = 5,000 + 4,000 = 9,000. Reapportion Stores $9,000 (2:1):** P1 = 6,000; P2 = 3,000. **Final:** P1 = 28,000 + 6,000 = **\$ 34,000; P2 = 22,000 + 3,000 = $25,000. (Check: 34,000 + 25,000 = 59,000 = 41,000 allocated + 18,000 rent ✓.)
Why this scores
Marking (point-based, 8). Allocation entries, rent apportionment, sub-totals, Stores reapportionment and final totals. Own-figure rule applies down the sheet.
Question 8
9706 Paper 4 style6 marks
Q (6 marks). A business apportions every overhead on floor area. Discuss whether this is appropriate.
Model answer
For: it is simple, quick and consistent, and floor area is reasonable for space-related costs like rent, rates, heating and lighting. Against: floor area does not reflect what causes many overheads — machinery insurance follows asset value, canteen cost follows headcount, power follows machine hours. Using one basis distorts department costs: a department with little machinery but a large floor is over-charged with insurance. This feeds into a wrong full cost per unit and so mispricing. Conclusion: acceptable only for genuinely space-related overheads; each overhead should ideally use the basis that best reflects its cause, otherwise product costs are unreliable.
Why this scores
Marking (point-based with supported judgement, 6). Both sides + a reasoned conclusion. Links to limitations of absorption costing / ABC.
Question 9
9706 Paper 4 style6 marks
Q (6 marks). Maintenance $10,000 and Stores$ 6,000 are service departments. Maintenance is used P1 40%, P2 40%, Stores 20%; Stores is then used P1 50%, P2 50%. P1 and P2 already hold $45,000 and$ 39,000. Calculate the final production-department overheads.
Model answer
Reapportion Maintenance $10,000:** P1 = 4,000 (40%); P2 = 4,000 (40%); Stores = 2,000 (20%). **New Stores total** = 6,000 + 2,000 = 8,000. **Reapportion Stores$ 8,000 (50:50): P1 = 4,000; P2 = 4,000. Final: P1 = 45,000 + 4,000 + 4,000 = $53,000; P2 = 39,000 + 4,000 + 4,000 = $47,000. (Check: 53,000 + 47,000 = 100,000 = 45,000 + 39,000 + 10,000 + 6,000 ✓.)
Why this scores
Marking (point-based, 6). Reapportion Maintenance first (it serves Stores), add its share to Stores, then share Stores out. Grand total unchanged.
Question 10
9706 Paper 4 style6 marks
Q (6 marks). Explain why a manufacturing business apportions its factory overheads between departments.
Model answer
To work out a full (absorption) cost per unit for each product, which is needed to:

set a selling price that covers all costs, not just direct costs;

value closing inventory at full production cost for the financial statements;

measure the profitability of each department or product so management can make decisions.

Sharing overheads fairly between departments is the first stage in charging them onto cost units.
Why this scores
Marking (point-based, 6). Any three developed reasons (pricing, inventory valuation, profitability/decisions). Must link to a full cost per unit.

Key Definitions and Keywords — Allocation & Apportionment of Overheads

Definitions to memorise and the exact keywords mark schemes credit for allocation & apportionment of overheads answers — sharpened from recent examiner reports for the 2026 Cambridge IGCSE sitting.

Cost centre
Examiner keyword
A department, location or function to which costs are charged and collected (e.g. the machining department).
Cost unit
Examiner keyword
A single unit of output to which costs are eventually charged (e.g. one table, one job, one hour).
Overhead (indirect cost)
Examiner keyword
A cost that cannot be traced directly to one cost unit (e.g. factory rent, supervision, depreciation).
Allocation
Examiner keyword
Charging a whole overhead to the one cost centre to which it wholly relates.
Apportionment
Examiner keyword
Sharing an overhead used by several cost centres between them on a fair basis.
Basis of apportionment
Examiner keyword
The fair measure used to share a shared overhead (e.g. floor area, machinery value, number of employees).
Production department
A department that physically makes the product (e.g. machining, assembly).
Service department
Examiner keyword
A department that supports production but makes no product (e.g. maintenance, stores, canteen).
Reapportionment
Examiner keyword
Sharing service-department overheads to the production departments that use their services.
Overhead analysis sheet
A grid with a column per department and a row per overhead, used to allocate, apportion and reapportion overheads.
Direct method (of reapportionment)
Reapportioning each service department straight to production, ignoring service-to-service work.
Step-down method
Reapportioning the service department that serves another first, so the second carries the cost it received before being shared out.

Common Mistakes and Misconceptions — Allocation & Apportionment of Overheads

The traps other students keep falling into on allocation & apportionment of overheads questions — taken from recent Cambridge IGCSE examiner reports and mark schemes — and how to avoid them.

✕Confusing a cost centre with a cost unit
9706 Examiner Reports
Why it happens
The two terms sound similar.
How to avoid it
A cost centre collects costs (a department); a cost unit absorbs them (one unit of output).
✕Applying a single basis (e.g. floor area) to every overhead
9706 Examiner Reports
Why it happens
It is quicker than choosing a basis for each.
How to avoid it
Each overhead uses its OWN basis reflecting its cause — rent by area, depreciation by asset value, canteen by employees.
✕Forgetting to reapportion service departments
9706 Examiner Reports
Why it happens
Stopping after allocation and apportionment.
How to avoid it
All overheads must end up in the production departments; reapportion every service department fully.
✕Changing the total overhead when reapportioning
9706 Examiner Reports
Why it happens
Treating reapportionment as adding new cost.
How to avoid it
Reapportionment only MOVES cost between departments — the grand total is unchanged. Check it cross-casts.
✕Apportioning on the wrong ratio or in the wrong department order
9706 Examiner Reports
Why it happens
Reading the bases carelessly.
How to avoid it
Write the basis as a ratio in department order and apply it carefully; check the shares add back to the total.
✕Allocating a shared cost wholly to one department
9706 Examiner Reports
Why it happens
Misreading which costs belong to one centre.
How to avoid it
Only allocate costs that relate wholly to one centre; shared costs must be apportioned on a basis.

Allocation & Apportionment of Overheads

Detailed Study Notes

At a glance

What you’ll learn

Quick recap

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How it’s examined

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1Cost centre vs cost unit (3 marks)

2Allocate or apportion? (3 marks)

3Choosing the basis of apportionment (5 marks)

4Apportion rent by floor area (4 marks)

5Apportion several overheads at once (6 marks)

6Build a small overhead analysis sheet (6 marks)

7Reapportion one service department (5 marks)

8Two service departments — direct method (6 marks)

9Service departments serving each other (7 marks)

10Why the choice of basis matters (4 marks)

Cost centre

Cost unit

Overhead (indirect cost)

Allocation

Apportionment

Basis of apportionment

Production department

Service department

Reapportionment

Overhead analysis sheet

Direct method (of reapportionment)

Step-down method

✕Confusing a cost centre with a cost unit

✕Applying a single basis (e.g. floor area) to every overhead

✕Forgetting to reapportion service departments

✕Changing the total overhead when reapportioning

✕Apportioning on the wrong ratio or in the wrong department order

✕Allocating a shared cost wholly to one department