TAC includes not just the costs of materials and labour, but also of all manufacturing overheads (whether ‘fixed’ or ‘variable’).
The selection of the base on which overheads are or should be apportioned depends on the following principles: With the process of primary apportionment or distribution, the loading of overheads for all the departments i.e. production as well as service departments can be obtained.
Each job while moving through the production department should get its share of overhead.
This method can be used in service industry where the major input is the skilled or unskilled labour.
This method is mostly used if the industry is labour-intensive and the labour is mostly unskilled or semiskilled.
if 20 labour hours are required to complete a job then the overhead will be 5.
If the industry considered has a high degree of automation and mechanization then this method can be used.
One of the main reasons for absorbing overheads into the cost of is for inventory valuation purposes.