ECONOMICS

Detailed explanation-1: -Basis for Apportionment The basis used for apportionment of costs is the number of cost centres when the expenses are to be shared equitably between them. This happens when an overhead can not be assigned directly to one specific cost centre.

Detailed explanation-2: -The direct method This is the simplest method and is ideal to use when service cost centres provide services to production cost centres, but not to each other. Example 1 considers such a situation. A company’s overheads have been allocated and apportioned to its five cost centres as shown below.

Detailed explanation-3: -Examples of direct costs are direct labor, direct materials, commissions, piece rate wages, and manufacturing supplies. Examples of indirect costs are production supervision salaries, quality control costs, insurance, and depreciation.