What is meant by Allocation of overheads?


While calculating overheads and especially working out overheads distribution sheet we came across the term “allocation” and during the distribution of overheads, we allocate, apportion and re-apportion overheads.

Each term has separate meaning and should not be considered as one and the same. It must also not be confused with usual division of overheads.

Allocation of overheads means charging a cost center with such overheads which can be measured and identified in relation to that specific cost center. In simple words, when a cost center is charged with such overheads which have been incurred by that cost center only and/or specifically then it means that overheads costs have been allocated to such cost center.

Usually when division of overheads is required its not allocation rather it is apportionment i.e. when overheads cannot be traced back to a particular cost center or cost unit then overheads are divided on arbitrary  basis.

To learn more about how overheads are allocated please check How to allocate overheads? (available soon)