## Primary Distribution of Overheads

Overheads relating to more than one department are spread across those departments. This spreading is called apportionment.

Examples: rent of building, power, lighting, insurance, depreciation.
For each item, first measure the proportion of benefit each department receives, then distribute the total on that basis.
No single basis fits all items — benefit must be measured differently for each kind of overhead.

### A. Common bases of Primary Distribution

Overhead cost	Basis of apportionment
Rent & building expenses; lighting/heating; fire precaution; air-conditioning	Floor area or volume of department
Perquisites; labour welfare; time-keeping; personnel office; supervision	Number of workers
Compensation to workers; holiday pay; ESI & PF contribution	Direct wages
General overhead	Direct labour hours, or direct wages, or machine hours
Depreciation / repairs of plant & machinery; insurance of stock	Capital values
Power/steam; internal transport; managerial salaries	Technical estimates
Lighting expenses	No. of light points, or area, or metered units
Electric power (machine operation)	Horse power of machines, or machine hours, or value of machines, or units consumed
Material handling; stores overhead	Weight / volume / value / units of materials

### B. Format for Primary Distribution

Columns: Production Departments (e.g. Machining, Assembling, Finishing) and Service Departments (e.g. X, Y, Z).
Direct material/labour/expenses are charged only where directly identifiable (often to service departments).
Apportioned items (Rent by floor area, Electricity by KWH, Lighting by light points, Indirect wages by direct wages, Depreciation by value of plant) are spread across all departments.
The column total gives 'Overheads as per Primary Distribution' for each department.

### C. Allocation vs Apportionment

Allocation	Apportionment
Deals with the whole item of cost, identifiable with one department	Deals with a proportion of an item of cost
Direct process — charge expense straight to a cost centre	Indirect process — must identify the appropriate share each department should bear

Hook: Allocation = whole item, one home (direct). Apportionment = a share, many homes (indirect).

Worked example

### Example 1

Apportioning rent of ₹X across departments: use floor area. If Machining occupies 40% of floor area, it bears 40% of rent. (Basis chosen because benefit from rent is proportional to space used.)

### Example 2

Apportioning depreciation of plant: use capital (book) value of plant in each department, since wear/value consumed is proportional to the plant value installed there.

⚠️ Common exam mistakes

Using one common basis for every overhead — each item needs a basis that reflects how benefit is actually received.
Confusing allocation with apportionment: allocation charges a whole cost to one identifiable department; apportionment splits a cost across several.
Forgetting that service departments also appear in primary distribution (they receive their share before secondary distribution redistributes them).
Choosing an inappropriate basis, e.g. apportioning machine power by floor area instead of horse power / machine hours.

Reference:

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Primary Distribution of Overheads — bases of apportionment, format, allocation vs apportionment

Worked example

⚠️ Common exam mistakes