PART A UNIVERSITY QUESTION PAPER AND ANSWERS

 

Secondary Distribution method of Apportionment of Overheads

            Service department cost are to be reapportioned to the production departments or the cost centers where production is going on . This process of reapportionment of overhead expenses is known as “secondary distribution”.

Following is list of bases of apportionment which may be accepted for the service departments noted against each

	Service Department Cost	Basis of Apportionment
1.	Maintenance Department	Hours worked
2.	Payroll or time Keeping	Total labour hours or Machine hours or Number of employees
3.	Employment  or personal department	Rate of labour turnover  or number of employees
4.	Store keeping department	No of Requistion or value of material
5.	Purchase department	No of purchase order/Value of material
6.	Welfare ,Ambulance,canteen services, recreation room services	No of employees in each department
7.	Building service department	Floor area
8.	Internal transport service or Overhead crane service	Weight/value graded product handled
9.	Transport department	Crane hours/truck hours/truck mileage
10.	Power house	Waltage/HP/H.P. Machine hrs/Electric point
11.	Power house	Floor area/cubic content

 Methods of Re-distribution /Re-apportionment

1.        Direct Re-distribution Method

2.        Step Distribution method

3.        Reciprocal services Method

                                i.            Simultaneous Equation method

                              ii.            Repeated Distribution method

                            iii.            Trial & Error method

 Repeated Distribution Method

            Under this method, the totals of service departments  are exhausted in turn repeatedly according to the agreed percentages until the figures become too small to matter/zero.

Problem1

Following is the particulars relate to a manufacturing company which has three production departments P1,P2 and P3 and two service departments S1 and S2.

	Production Departs…			Service Depats…
Total overheads as per primary distribution(Rs.)	6,300	7,400	2,800	4,500	2,000

 The company decided to charge the service departments cost on the basis of following percentages.

	Production Departs…			Service Depats…
S1	40%	30%	20%	----	10%
S2	30%	30%	20%	20%	-----

Find the total overheads of production departments charging service departments’ cost to production departments

        i.            i)On repeated distribution method

Solution

	Production Departs…			Service Depats…
Department overhead as per primary Distribution	6,300	7,400	2,800	4,500	2,000
Department S1 overhead apportion in the ration of 4:3:2:1	1,800	1,350	900	(-4,500)	450
Department S2 overhead apportion in the ration of 3:3:2:2	735	735	490	490	(-2450)
Department S1 overhead apportion in the ration of 4:3:2:1	196	147	98	(-490)	49
Department S2 overhead apportion in the ration of 3:3:2:2	15	15	10	9	(-49)
Department S1 overhead apportion in the ration of 4:3:2:1	4	3	2	(-9)	0
	9,050	9,650	4,300	0	0