Apportion Details

For accounting purposes, a company would like to know what contribution each of its departments makes to its profits, costs, or revenues. However, it is difficult, if not impossible, to do this accurately as the company has to consider many factors if it wants to apportion fairly. A company cannot attribute some of its costs or revenues to one single department or section in a business.

For example, a business may pay rent and utilities on a building that houses several different departments. Each department has to share these budgeted costs. The company apportions the total cost of rent and utilities to the departments that use the building. The question then arises as to how to do this equitably. The company might decide to apportion the cost of rent and utilities according to how much floor space a department occupies and/or how many people work in each department and use any available software program to run and manage the apportioning.

Another example of apportioning is when a company operates in many different states. The total revenue that the company generates may be apportioned to its subsidiaries in individual states for tax purposes. In the insurance business, when two (or more) insurers have to pay out on the same claim, their respective liabilities depend on the policies each insurer has issued. The insurance company then apportions the claim between them.

Apportion Example

Beale's Beefy Burgers is a household name in the fast-food industry. They have franchises in over sixty countries. It has launched a worldwide publicity campaign designed, produced, and filmed in the United States. Beale's based its campaign on a series of television commercials dubbed into the local language. They then reinforced it with in-store offers and giveaways. Although Beale's biggest market is in the United States, all of its international outfits will benefit from the campaign. Because the campaign is international in scope, all of Beale's franchises will share the costs of the campaign.

In St Louis, Missouri, company headquarters decides that they will apportion the cost of the campaign according to how many franchises a country has. There are over a thousand outlets in the United States but only two in Belize. Therefore, the company decides, United States franchises will pay an overall sum of over five hundred times more than the Belize operation.

Apportioned amongst the outlets, this would mean that an outlet in the United States and an outlet in Belize would pay the same amount. The management team in St Louis belive that this would be a fair division of costs. Still, the owner of the Belize franchises points out that the price that they charge for a Beefy Burger in Belize is lower than that charged in the United States because of local market conditions. As the price of a burger in Belize is lower, the revenue is accordingly lower. Therefore, the contribution to the cost of the campaign in Belize should be proportionally lower.