Page 57 - F2 Slides 2017-18
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Absorption costing
Step1 : Allocation is the charging of overheads directly to specific departments where
they can be identified directly with a cost centre or cost unit.
Apportionment is the sharing of overheads which relate to more than one
department on a fair basis.
Step 2 : Service department costs need to be reapportioned to the production
departments, using a suitable basis linked to usage of the service.
Step 3 : Costs within production cost centres are charged to a cost unit, using overhead
absorption rates (OAR)
OAR = Budgeted overheads / Budgeted level of activity
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