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Guilherme Mazui

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What is the Difference Between Allocation and Apportionment?

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The main difference between allocation and apportionment lies in their purpose and application. Here are the key differences between the two concepts:

Allocation:

  1. Allocation is used to determine the cost of a specific department or activity.
  2. It assigns costs to different cost objects, such as products, departments, or activities, based on the cause-and-effect relationship between the cost object and the cost incurred.
  3. The purpose of cost allocation is to determine the full cost of each cost object for decision-making and pricing purposes.
  4. Allocation applies to non-business income, which is assigned to a particular state or local tax authority.

Apportionment:

  1. Apportionment is used to distribute the cost of a shared resource to multiple departments or activities.
  2. It divides the total costs of a cost center among multiple cost objects, based on some rational and systematic basis.
  3. The purpose of cost apportionment is to fairly distribute indirect costs to different cost objects.
  4. Apportionment is used to assign the business income among the states, using a formula that includes factors such as payroll, sales revenue, and other property used to generate business-related income.

In summary, allocation is used to assign costs to specific cost objects based on their relationship to the cost incurred, while apportionment is used to distribute the costs of a shared resource among multiple cost objects.

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  • What is the Difference Between Allocation and Apportionment?
  • Comparative Table: Allocation vs Apportionment

    • Comparative Table: Allocation vs Apportionment

    Here is a table comparing the differences between allocation and apportionment:

    Feature Allocation Apportionment
    Definition The process of assigning costs to different cost objects (e.g. products, departments, customers) based on the cause-and-effect relationship between the cost object and the cost incurred. The process of dividing the total costs of a cost center among multiple cost objects, based on some rational and systematic basis.
    Purpose To determine the full cost of each cost object for decision-making and pricing purposes. To determine the share of costs for each cost object for the purpose of internal charge out and cost control.
    Approach Uses specific and direct cost allocation methods, such as direct tracing or step-down method. Uses indirect and arbitrary methods, such as using a cost driver, or using a predefined ratio or percentage.
    Basis Based on the direct use of a shared resource by a specific department or activity. Distributed over multiple departments based on some rational and systematic basis.

    In summary, allocation is used to assign costs directly to specific cost objects based on the cause-and-effect relationship, while apportionment is used to distribute the total costs of a cost center among multiple cost objects based on rational and systematic methods.

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    Guilherme Mazui

    Guilherme Mazui is graduated in journalism from the Federal University of Minas Gerais (UFMG) and a master's degree in Communication from the University of São Paulo (USP). In addition, he has experience in advertising writing and has worked as a content editor in several companies.