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Cost Allocation vs. Cost Apportionment: Know the Difference

Shumaila Saeed
By Shumaila Saeed || Published on January 25, 2024
Cost Allocation involves distributing specific costs to relevant cost centers or objects. Cost Apportionment, on the other hand, entails dividing aggregated costs proportionally among multiple cost centers.
Cost Allocation vs. Cost Apportionment

Key Differences

Cost Allocation involves assigning specific costs directly to a cost center or object. In contrast, Cost Apportionment is about dividing broader aggregated costs among multiple cost centers based on a fair and reasonable basis.
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Shumaila Saeed
Jan 25, 2024
Cost Allocation is typically associated with direct costs that can be directly traced to a cost object. Cost Apportionment deals more with indirect costs, which are not directly traceable and need to be distributed on a reasonable basis.
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Shumaila Saeed
Jan 25, 2024
Cost Allocation uses a more direct method, assigning costs based on an identifiable measure. Cost Apportionment employs a more complex method, using criteria like floor space or time spent to distribute costs fairly.
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Jan 25, 2024
Cost Allocation is used when costs are easily identifiable with specific departments or projects. Cost Apportionment is applied when costs benefit multiple departments or projects and need to be distributed fairly.
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Jan 25, 2024
The objective of Cost Allocation is to accurately assign costs where they specifically belong. The goal of Cost Apportionment is to ensure a fair and equitable distribution of shared or common costs.
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Jan 25, 2024
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Comparison Chart

Type of Costs

Direct and specific
Indirect and aggregated
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Methodology

Direct assignment to cost centers/objects
Proportional distribution
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Application Scope

Specific departments or projects
Multiple departments or projects
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Basis of Distribution

Direct measures like hours or units
Criteria like usage or floor space
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Objective

Accuracy in cost assignment
Fairness and equity in distribution
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Cost Allocation and Cost Apportionment Definitions

Cost Allocation

Assigning specific costs directly to a cost object.
The company allocated manufacturing costs to each product line.
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Cost Apportionment

Dividing costs that cannot be directly assigned to a single area.
The rent and utilities of the shared office space were apportioned among the tenants.
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Jan 05, 2024

Cost Allocation

Assigning costs based on a direct relationship with the cost object.
Direct labor costs were allocated to projects based on actual hours worked.
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Cost Apportionment

The process of dividing indirect costs on a fair and equitable basis.
Cost apportionment for utilities was done using the square footage of each department.
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Jan 05, 2024

Cost Allocation

The process of identifying, aggregating, and assigning costs to cost centers.
Cost allocation for marketing expenses was based on each department's campaign duration.
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Cost Apportionment

Distributing aggregated costs among multiple cost centers.
Overhead costs were apportioned to departments based on employee headcount.
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Cost Allocation

Distribution of particular costs to relevant business units.
The IT department's costs were allocated based on the number of users in each division.
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Cost Apportionment

Allocation of shared costs to various parts of the business.
Shared technology costs were apportioned based on usage metrics.
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Jan 05, 2024

Cost Allocation

The methodology of linking specific expenses to distinct areas of business.
Allocation of utility costs was done based on each department's floor area.
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Jan 05, 2024

Cost Apportionment

Proportional distribution of joint costs to different cost objects.
Marketing costs were apportioned among different product lines based on sales revenue.
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Repeatedly Asked Queries

What is Cost Apportionment?

Dividing broad aggregated costs among multiple cost centers.
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Jan 25, 2024

How does Cost Allocation differ in methodology?

It uses direct measures for assigning costs.
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Are direct costs involved in Cost Allocation?

Yes, it typically deals with direct costs.
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When is Cost Apportionment applied?

When costs need to be fairly distributed across multiple areas.
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Jan 25, 2024

What is the goal of Cost Allocation?

To accurately assign costs to where they belong.
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Jan 25, 2024

What is Cost Allocation?

Assigning specific costs directly to cost centers or objects.
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Does Cost Apportionment handle indirect costs?

Yes, it primarily involves the distribution of indirect costs.
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Can Cost Allocation be used for overhead costs?

Not typically, as overheads are usually not directly traceable.
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How is fairness ensured in Cost Apportionment?

By using equitable criteria for distribution.
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What methodology does Cost Apportionment use?

It involves distributing costs based on a fair and equitable basis.
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In what scenario is Cost Allocation used?

When costs are easily identifiable with specific areas.
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Jan 25, 2024

Is Cost Apportionment suitable for overhead costs?

Yes, it's ideal for distributing overhead costs.
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Can Cost Apportionment be subjective?

It involves some level of judgement to ensure fairness.
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Can both methods be used in one organization?

Yes, organizations often use both for different types of costs.
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Jan 25, 2024

How do these methods impact financial reporting?

They influence how costs are reported and analyzed for decision-making.
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What is the objective of Cost Apportionment?

To ensure fair distribution of shared or common costs.
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Jan 25, 2024

Is Cost Allocation simpler than Cost Apportionment?

Yes, it's generally more straightforward.
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Shumaila Saeed
Jan 25, 2024

Does Cost Allocation require detailed tracking?

Yes, it requires detailed tracking of specific costs.
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Jan 25, 2024

Can Cost Allocation be subjective?

No, it's based on objective and measurable factors.
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Shumaila Saeed
Jan 25, 2024

Is Cost Apportionment more complex?

Yes, due to its need for equitable distribution criteria.
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Shumaila Saeed
Jan 25, 2024

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About Author
Shumaila Saeed
Written by
Shumaila Saeed
Shumaila Saeed, an expert content creator with 6 years of experience, specializes in distilling complex topics into easily digestible comparisons, shining a light on the nuances that both inform and educate readers with clarity and accuracy.

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