Allocation of overheads (OH)
Apportionment of overheads (OH)
Methods for secondary apportionment of service overhead
When service department is giving its services to other service departments and production departments then following method are used
- Repeated Distribution Method
- Simultaneous Equation Method → When there are only two service departments
- Direct Method
- Step Method
REPEATED DISTRIBUTION METHOD
If service department apportion its cost to production departments and other service departments and that other service departments likewise apportion their costs to production departments and apportion back to other service departments until total cost of both service departments are apportion to the production departments.
|Particulars||Production department 1||Production department 2||Service department S1||Service department S2|
|Allocation of S1||XXXX||XXXX||(XXXX)||XXXX|
|Allocation of S2||XXXX||XXXX||XXXX||(XXXX)|
|Reallocation of S1||XXXX||XXXX||(XXXX)||−−−−−|
|Total Budgeted Overhead||XXXX||XXXX||−−−−−||−−−−−|
ALGEBRIC METHOD (SIMULTANEOUS EQUATION METHOD)
Simultaneous equation method is used when only there are only two service departments
In this method we use equation to allocate the service departments’ expenses to production departments.
|Particulars||Production Department||Service Department|
Equation for service Departments
X = 100,000 + 0.1 Y
Y = 60,000 + 0.2 X
If service department apportion its cost only to production Department.
Recognition of Direct Method (When Statement is used)
Service department apportion their cost only to production departments
If first service department apportion its cost to production department and other service department and that other service department apportion its cost to production department and does not reapportion its cost to first service department or does not apportion back its cost to first service department.