Study guide
3.3 Overhead Allocation, Apportionment, and Reapportionment
AAT Level 3 Diploma in Accounting - Management Accounting Techniques MATS
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1 Chapter 1: Purpose and Use of Management Accounting
1.1 Role and Scope of Management Accounting 1.2 Cost Classification and Responsibility Accounting 1.3 Information Needs and Management Reporting
2 Chapter 2: Techniques for Dealing with Costs
2.1 Cost Behaviour Patterns 2.2 High-Low Method and Cost Estimation 2.3 Costing Methods: Job, Batch, Unit, and Service Costing 2.4 Cost Accounting Records and Journals
3 Chapter 3: Attributing Costs to Organisational Requirements
3.1 Material Costs and Inventory Valuation 3.2 Labour Costing and Remuneration Systems 3.3 Overhead Allocation, Apportionment, and Reapportionment 3.4 Overhead Absorption and Activity-Based Costing
4 Chapter 4: Investigating Deviations from Budgets - Variance Analysis
4.1 Standard Costing and Flexible Budgets 4.2 Direct Material and Direct Labour Variances 4.3 Overhead and Sales Variances 4.4 Reconciliation Operating Statements and Variance Interpretation
5 Chapter 5: Spreadsheet Techniques
5.1 Spreadsheet Design Principles and Data Integrity 5.2 Essential Spreadsheet Functions for Accounting 5.3 Data Analysis, Formatting, and Security
6 Chapter 6: Short-Term Decision Making
6.1 Marginal vs Absorption Costing 6.2 Cost-Volume-Profit (CVP) and Break-Even Analysis 6.3 Relevant Costing and Non-Routine Decisions 6.4 Limiting Factor Analysis and Make-or-Buy Decisions
7 Chapter 7: Principles of Cash Management
7.1 Cash vs Profit and Cash Flow Forecasting 7.2 Working Capital Cycle and Cash Control 7.3 Liquidity, Treasury, and Financing Options
3.3 Overhead Allocation, Apportionment, and Reapportionment
Key Takeaways Explain This Topic AI
Allocation charges complete items of indirect expenditure directly to a single cost centre when incurred exclusively by that centre.
Apportionment splits shared overhead costs across multiple cost centres using fair bases (e.g., floor area for rent, machine value for depreciation).
Secondary reapportionment redistributes service department costs (maintenance, canteen) to production cost centres.
Reciprocal services between service departments are reapportioned using the Direct Method, Step-Down Method, or Repeated Distribution Method.
The Overhead Analysis Sheet (OAS) systematically combines allocation, primary apportionment, and reapportionment to establish final production cost totals.
Last updated: August 2026
3.3 Overhead Allocation, Apportionment, and Reapportionment
Indirect production costs (factory overheads) cannot be traced directly to individual cost units. To ensure that product costs accurately reflect the total resources consumed during manufacturing, management accountants distribute factory overheads across cost centres in a systematic three-step process: Allocation , Primary Apportionment , and Secondary Reapportionment using an Overhead Analysis Sheet (OAS) .
- The Three Stages of Overhead Distribution TOTAL FACTORY OVERHEADS
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- 1. ALLOCATION 2. PRIMARY APPORTIONMENT
- Whole cost items charged directly to a cost centre Shared costs split across centres using bases
- (e.g., Canteen supervisor salary -> Canteen) (e.g., Factory rent split by Floor Area sq m)
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- 3. SECONDARY REAPPORTIONMENT
- Service Dept overheads reapportioned to Prod Depts
- (e.g., Maintenance costs transferred to Machining & Assembly)
- Stage 1: Overhead Allocation
Allocation is the process of charging an entire, identifiable item of indirect cost directly to a specific cost centre, because that cost was incurred exclusively by or within that cost centre.
Examples : Salary of the Maintenance Manager allocated to Maintenance Cost Centre; Canteen food supplies allocated to Canteen Cost Centre; Machining oil allocated to Machining Cost Centre.
Stage 2: Primary Overhead Apportionment
Apportionment is the process of dividing shared indirect costs across multiple production and service cost centres using an equitable basis that reflects the benefit received by each centre.
Standard Bases of Apportionment
Overhead Cost Item Recommended Basis of Apportionment
Factory Rent, Rates, Heating, Lighting, Building Insurance Floor Area ( m 2 m^2 m 2 or s q f t sq ft s q f t ) occupied by each cost centre
- Machine Depreciation, Machinery Insurance Cost / Book Value of machinery in each centre
- Canteen Costs, Personnel Dept, First Aid, Welfare Number of Employees / Headcount in each centre
Electric Power for Machinery Kilowatt-Hours (kWh) or Machine Capacity ( H P × hours HP \times \text{hours} H P × hours )
- Storekeeping / Materials Handling Costs Number of Material Requisitions or Quantity of Materials Consumed
- Supervisors' Salaries (Shared) Number of Direct Workers or Direct Labour Hours
- Stage 3: Secondary Reapportionment of Service Department Overheads
Service departments (e.g., Factory Maintenance, Canteen, Stores) support production departments but do not manufacture goods directly. Therefore, their accumulated overheads must be reapportioned to production cost centres (such as Machining and Assembly) so that production departments bear the full cost of manufacturing.
Reapportionment Methods
Direct Method : Ignores any work service departments perform for each other and reapportion service department costs exclusively to production cost centres.
Step-Down Method : Reapportions service department costs sequentially, starting with the service department that provides services to the greatest number of other service departments. Once a service department's costs are reapportioned, no costs are allocated back to it.
Repeated Distribution Method : Handles reciprocal services (where service departments serve each other) by repeatedly reallocating remaining balances until amounts become negligible.
Worked Numerical Example: Complete Overhead Analysis Sheet (OAS)
Scenario : Apex Manufacturing has two production departments ( Machining and Assembly ) and two service departments ( Maintenance and Canteen ). The overheads and operational parameters for July are:
Directly Allocated Overheads : Maintenance Dept salaries £6,000; Canteen Dept supplies £4,000.
Shared Overheads to Apportion :
- Factory Building Rent & Rates: £20,000
- Machine Depreciation: £12,000
- Factory Staff Welfare: £5,000
Departmental Parameters :
- Parameter Machining Assembly Maintenance Canteen Total
- Floor Area ( m 2 m^2 m 2 ) 4,000 3,000 2,000 1,000 10,000
- Machine Book Value (£) £150,000 £30,000 £20,000 £0 £200,000
- Number of Employees 25 45 10 5 85
- Maintenance Hours Used 600 hrs 200 hrs - - 800 hrs
- Step-by-Step Apportionment Calculations
Rent (£20,000) : Apportioned by Floor Area ( 10 , 000 m 2 10,000 m^2 10 , 000 m 2 total → £ 2 / m 2 \rightarrow \pounds 2/m^2 → £2/ m 2 ).
Machining: 4 , 000 × 2 = £ 8 , 000 4,000 \times 2 = \pounds 8,000 4 , 000 × 2 = £8 , 000 ; Assembly: 3 , 000 × 2 = £ 6 , 000 3,000 \times 2 = \pounds 6,000 3 , 000 × 2 = £6 , 000 ; Maint: 2 , 000 × 2 = £ 4 , 000 2,000 \times 2 = \pounds 4,000 2 , 000 × 2 = £4 , 000 ; Canteen: 1 , 000 × 2 = £ 2 , 000 1,000 \times 2 = \pounds 2,000 1 , 000 × 2 = £2 , 000 .
Machine Depreciation (£12,000) : Apportioned by Machine Value (£200,000 total → 6 % \rightarrow 6\% → 6% of value).
Machining: 150 , 000 × 6 % = £ 9 , 000 150,000 \times 6\% = \pounds 9,000 150 , 000 × 6% = £9 , 000 ; Assembly: 30 , 000 × 6 % = £ 1 , 800 30,000 \times 6\% = \pounds 1,800 30 , 000 × 6% = £1 , 800 ; Maint: 20 , 000 × 6 % = £ 1 , 200 20,000 \times 6\% = \pounds 1,200 20 , 000 × 6% = £1 , 200 ; Canteen: £0.
Staff Welfare (£5,000) : Apportioned by Employee Count (85 total → £ 58.8235 / e m p \rightarrow \pounds 58.8235/emp → £58.8235/ e m p ).
Machining: 25 × 58.8235 = £ 1 , 471 25 \times 58.8235 = \pounds 1,471 25 × 58.8235 = £1 , 471 ; Assembly: 45 × 58.8235 = £ 2 , 647 45 \times 58.8235 = \pounds 2,647 45 × 58.8235 = £2 , 647 ; Maint: 10 × 58.8235 = £ 588 10 \times 58.8235 = \pounds 588 10 × 58.8235 = £588 ; Canteen: 5 × 58.8235 = £ 294 5 \times 58.8235 = \pounds 294 5 × 58.8235 = £294 .
Primary Apportionment Summary Table
- Overhead Cost Basis Machining (£) Assembly (£) Maintenance (£) Canteen (£) Total (£)
- Allocated Salaries/Supplies Direct £0 £0 £6,000 £4,000 £10,000
- Factory Rent Floor Area £8,000 £6,000 £4,000 £2,000 £20,000
- Machine Depreciation Machine Value £9,000 £1,800 £1,200 £0 £12,000
- Staff Welfare Employees £1,471 £2,647 £588 £294 £5,000
- PRIMARY TOTALS £18,471 £10,447 £11,788 £6,294 £47,000
- Step-Down Secondary Reapportionment
Step A: Reapportion Canteen (£6,294) based on employees in remaining depts (Machining 25, Assembly 45, Maintenance 10 = 80 total → £ 78.675 / e m p \rightarrow \pounds 78.675/emp → £78.675/ e m p ).
Machining: 25 × 78.675 = £ 1 , 967 25 \times 78.675 = \pounds 1,967 25 × 78.675 = £1 , 967 ; Assembly: 45 × 78.675 = £ 3 , 540 45 \times 78.675 = \pounds 3,540 45 × 78.675 = £3 , 540 ; Maint: 10 × 78.675 = £ 787 10 \times 78.675 = \pounds 787 10 × 78.675 = £787 .
Maintenance subtotal after Canteen reapportionment = £ 11 , 788 + £ 787 = £ 12 , 575 \pounds 11,788 + \pounds 787 = \mathbf{\pounds 12,575} £11 , 788 + £787 = £12 , 575 .
Step B: Reapportion Maintenance (£12,575) based on Maintenance Hours (Machining 600 hrs, Assembly 200 hrs = 800 total hrs → \rightarrow → Machining 75%, Assembly 25%).
Machining: 75 % × 12 , 575 = £ 9 , 431 75\% \times 12,575 = \pounds 9,431 75% × 12 , 575 = £9 , 431 ; Assembly: 25 % × 12 , 575 = £ 3 , 144 25\% \times 12,575 = \pounds 3,144 25% × 12 , 575 = £3 , 144 .
Final Overhead Analysis Sheet Totals
- Line Item Machining (£) Assembly (£) Maintenance (£) Canteen (£)
- Primary Apportionment Subtotals £18,471 £10,447 £11,788 £6,294
- Reapportion Canteen +£1,967 +£3,540 +£787 -£6,294
- Reapportion Maintenance +£9,431 +£3,144 -£12,575 £0
- FINAL PRODUCTION OVERHEAD TOTALS £29,869 £17,131 £0 £0
- AAT Exam Traps
Exam Trap 1 — Allocating Direct Costs to OAS : Only INDIRECT overheads are included on an Overhead Analysis Sheet. Direct material and direct labour are charged directly to cost units and must be excluded from OAS primary apportionment.
Exam Trap 2 — Reapportionment Base Order : In the Step-Down method, always start by closing the service department that serves the greatest number of other service departments. Once closed, never allocate any costs back to it!