Accounting - for Overheads - Allocation, Apportionment and Absorption rate - AAT

In this video I discuss accounting for overheads through the three stages, allocation, apportionment and absorption. If you are struggling with apportionment of overheads then this video may help. This would be useful to anyone studying AAT Level 3 or Level 4 (AAT level 4). Overheads can be split into direct costs and indirect costs. Direct costs are directly attributable to a cost centre whereas indirect costs are more difficult to attribute and need to be apportioned across many different cost centres. Indirect costs can be variable, fixed or semi-variable (which include both fixed and variable elements). Here I walk you through an example of apportionment with rent of £200k and how we might apportion this across three different cost centres based on their square footage. We also need to ensure that in the third step of apportionment, we re-charge service cost centre costs to the various other production cost centres. Here I also discuss rate per unit and the alternative rate of absorption as well as the advantages and disadvantages to the various different cost basis.