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| Allocated and Apportioned Cost |
Cost allocation is the allotment of the whole items of costs to cost centres or cost units. Cost apportionment refers to the allotment of proportions of item of cost to cost centres or cost units. A cost which is allocated to a cost centre is a direct cost of that cost centre, whereas the cost which is apportioned to different cost centres on suitable basis is an indirect cost of that cost centre. Thus, direct costs are allocated, since they can be directly identified with a cost centre or cost unit, and indirect costs are apportioned expenditure. The concept of direct and indirect cost is very important for costing purposes.
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