Overheads — Allocation and Apportionment

Abstract

At some point, a company may wish to know the total cost of a particular product or service. The records kept of direct costs, such as materials and labour, enable these costs to be identified with specific units. However, a company also incurs indirect expenses, such as rent and rates, light and heat, insurance and salaries of supervisors. Some method must be found to charge a fair share of these indirect expenses, known as overheads, to individual cost units to find the total cost of each unit.