Build activity cost pools and apportion overheads
Group indirect costs by activity and apportion shared overheads using a reasoned basis before calculating rates.
Exam scope and assessment notes
Cambridge International AS & A Level Accounting 9706, 2026–2028 syllabus, Version 2. Topic 4.1 covers activity-based costing (ABC), cost drivers, overhead apportionment and allocation, unit cost and selling-price calculations, method comparisons, uses and limitations, and supported decisions. Practice is self-checked, not an official Cambridge grade. Full timed Papers 1–4 and human subject-teacher review remain outstanding.
Before you begin
- Use AS Topic 2.1–2.2 knowledge of fixed and variable costs, overhead absorption, cost-plus pricing and contribution. This A Level pathway compares those methods with activity-based costing.
Work on paper. Try each question before revealing help, and explain why your method works.
Quick readiness check
A pool contains costs for one activity. What happens next?
What you will learn
- Group overheads into activity cost pools
- Apportion shared overheads to suitable activities
- Reconcile total costs across pools
Create pools that reflect distinct work
An activity cost pool gathers related overheads for an activity such as set-ups, inspections or deliveries. Separate pools when the activities consume resources differently; combining them can hide product cost differences.
Some overheads support more than one activity. Apportion shared amounts to pools using a reasonable basis, such as support hours or floor space when that basis reflects usage. Record the method and check that the pool totals reconcile to the original overhead total.
Keep allocation assumptions visible
Apportionment divides a shared cost among cost centres or pools; allocation later charges each pool to products using its driver. These are separate steps. A sensible apportionment does not make an arbitrary product-level driver accurate.
If overheads are assigned using estimates, explain the basis, apply it consistently and assess whether the choice affects product rankings or a decision. The calculations support decisions; they do not remove judgement.
Pause and explain
Why reconcile the pool totals to original overhead?
Worked example
A factory's $24,000 maintenance cost supports two pools. Production records show 25% of maintenance hours relate to set-ups and 75% to machine processing. Apportion the cost.
Show the worked solution
- Set-up pool receives 25% × $24,000 = $6,000.
- Machine-processing pool receives 75% × $24,000 = $18,000.
- $6,000 + $18,000 = $24,000, so the apportionment reconciles.
Answer Apportion $6,000 to set-ups and $18,000 to machine processing using the maintenance-hour evidence.
Try a topic test
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Test this topic →From guided practice to a new situation
Write your answer and reasoning first. Use a hint only if you are stuck. The model solution is for self-checking; your written work is not automatically marked.
A shared $80,000 support cost is apportioned 30% to inspections and 70% to deliveries. Calculate the two pool amounts and check the total.
Give me a hint
Apply each percentage to the shared cost.
Compare my reasoning
- Inspections = 30% × $80,000 = $24,000.
- Deliveries = 70% × $80,000 = $56,000.
- $24,000 + $56,000 = $80,000.
Inspection pool receives $24,000; delivery pool receives $56,000; the total reconciles to $80,000.
Look for these in your work
- Calculate the 30% inspection amount.
- Calculate the 70% delivery amount.
- Reconcile both pools to the original cost.
Overheads of $150,000 comprise $50,000 machine maintenance, $40,000 set-up staff and $60,000 order processing. Place them into three pools and state one check.
Give me a hint
Group each cost by the activity it supports.
Compare my reasoning
- Machine-processing pool = $50,000.
- Set-up pool = $40,000; order-processing pool = $60,000.
- Check that $50,000 + $40,000 + $60,000 = $150,000 and no overhead is duplicated.
The three pools are $50,000, $40,000 and $60,000; their total reconciles to $150,000.
Look for these in your work
- Match each cost to an activity.
- Keep three pools separate.
- Check the pooled total against source overhead.
A company places all building rent into machine processing because the factory floor is the largest area. What should the accountant examine before accepting this basis?
Give me a hint
Area may measure space but not necessarily the activities causing or benefiting from the rent.
Compare my reasoning
- Map the spaces used by each activity and assess whether rent benefits all areas or particular pools.
- Compare possible bases such as floor area, occupancy or documented usage with the cost's underlying cause.
- Choose and document a consistent basis, disclose the judgement and test whether the allocation materially changes product decisions.
Do not assume the largest area is the right driver. Check how the rent supports each activity, select an evidenced basis and assess the decision impact.
Look for these in your work
- Inspect how rent benefits each activity.
- Compare plausible apportionment bases.
- Document and test the selected judgement.
Common mistakes
- Confusing apportionment to pools with allocation to products
- Failing to reconcile the pools to the original overhead
- Using an unsupported basis for shared costs
What can you explain now?
What happens at the apportionment stage?
Compare with the explanation
A shared overhead is divided between relevant activities or pools
Apportionment places shared overhead into pools before product-level driver allocation.
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Make it stick
Explain the difference between apportioning overheads to pools and allocating pools to products.
If you needed the solution, close it and solve the problem again from a blank page. A correct answer is stronger when you can explain the reason for each step.