A level-readyAll subjects · Accounting · WAC11 The Accounting System and Costing
Overheads: behaviour, allocation and apportionment
Edexcel IAL Accounting · WAC11 The Accounting System and Costing
Overheads are indirect costs that cannot be traced to a single unit. They are classified by how they behave as output changes, then allocated and apportioned to cost centres so they can be absorbed into product costs (spec 1.4.7 and 1.4.8).
Cost behaviour
| Type | Behaviour as output rises | Example |
|---|---|---|
| Fixed | Total stays the same within a range (cost per unit falls) | Factory rent, insurance |
| Variable | Total rises in proportion to output | Power for machines, direct materials |
| Semi-variable (mixed) | A fixed part plus a variable part | Telephone: line rental plus calls; electricity standing charge plus usage |
| Semi-fixed (stepped) | Fixed over a range, then jumps to a new level | Supervisors' salaries: one more supervisor for each extra shift |
Allocate, apportion, absorb
- Allocate: charge an overhead wholly to one cost centre when it belongs to it (the canteen staff's wages to the canteen).
- Apportion: share an overhead between cost centres on a fair basis: rent, rates and heating by floor area; machine depreciation and insurance by machine value; canteen and personnel costs by number of employees; power by machine hours or kWh.
- Absorb: charge the cost centre's overheads to units of output using an absorption rate (next lessons).
| Overhead (basis) | Machining £ | Assembly £ | Canteen £ | Total £ |
|---|---|---|---|---|
| Rent (floor area 2,000 : 1,500 : 500) | 20,000 | 15,000 | 5,000 | 40,000 |
| Machine depreciation (machine value) | 14,400 | 3,600 | 0 | 18,000 |
| Heating (floor area) | 3,000 | 2,250 | 750 | 6,000 |
| Supervision (allocated) | 12,000 | 9,000 | 6,000 | 27,000 |
| Total | 49,400 | 29,850 | 11,750 | 91,000 |
Why it matters
Accurate overhead costs help managers set prices that cover all costs, judge which products are profitable and control the costs of each department. But apportionment bases are judgements: a different basis gives a different product cost.
Worked example
Explain how the rent figure for Machining was found.
- Total floor area = 2,000 + 1,500 + 500 = 4,000 m².
- Machining's share = 2,000 / 4,000 x 40,000 = 20,000.
Answer: Machining rent £20,000.
Check yourself
- Rent of £54,000 is apportioned by floor area: Cutting 1,800 m², Finishing 1,200 m², Stores 600 m². Calculate Finishing's share.
Show answer
£18000. 54,000 x 1,200/3,600 = 18,000.
- Machine insurance of £7,200 is apportioned by machine value: Department A £90,000, Department B £30,000. Calculate A's share.
Show answer
£5400. 7,200 x 90/120 = 5,400.
- A telephone bill is £45 a month plus £0.08 per minute. Calculate the bill for 2,500 minutes.
Show answer
£245. 45 + 200 = 245. This is a semi-variable cost.
- A factory needs one supervisor for up to 20 workers and a second for 21 to 40 workers. Supervisors' salaries are
- variable
- semi-variable
- direct costs
- semi-fixed (stepped)
Show answer
semi-fixed (stepped). The cost is fixed over a range, then steps up.
- Which is the most suitable basis for apportioning canteen costs?
- Floor area
- Number of employees
- Machine hours
- Value of machinery
Show answer
Number of employees. Canteen use depends on the number of staff in each department.
- The salary of the maintenance department's manager should be
- apportioned by floor area
- apportioned by number of employees
- charged directly to each product
- allocated to the maintenance department
Show answer
allocated to the maintenance department. It belongs wholly to one cost centre.
Sources
Last updated 8 November 2026. Spotted a mistake? Tell us.