Secondary Distribution: Reapportionment of Service Costs

Understand Secondary Distribution: Reapportionment of Service Costs

Key rules to remember

Reapportioned share

Share to a department = Service cost to be distributed × (its percentage or ratio ÷ total of the ratios used)

In the direct method the ratios used are only those of production departments, so re-base the percentages to 100.

Step method order

Close first the department that serves the most departments or has the largest cost

Follow the order given in the question if it is stated. Once closed, a department gets no further cost.

Simultaneous equation for reciprocal services

S1 = own primary cost of S1 + (% of S2 service to S1) × S2 and S2 = own primary cost of S2 + (% of S1 service to S2) × S1

S1 and S2 are the total costs of the service departments after receiving each other's share. Solve, then distribute these totals.

Closing check

Σ (production department overheads after secondary distribution) = Σ (all primary overheads)

Always verify this before moving to absorption rates.

How to solve Secondary Distribution: Reapportionment of Service Costs questions

1. 1List primary totals of all production and service departments. Add them to get the control total.
2. 2Read the question for the method required. If none is named and services are reciprocal, use simultaneous equations or repeated distribution. If one-way, use step or direct.
3. 3Write the percentage matrix: for each service department, its percentage of service to every other department. Each row must add to 100.
4. 4Direct method: re-base percentages to production departments only and distribute. Step method: close departments one by one in the right order and carry received cost forward.
5. 5Reciprocal services: either set up equations for the total of each service department and solve, or redistribute repeatedly until the balance is negligible.
6. 6Distribute the final total of each service department to production departments using the percentages. Do not give back to a department already cleared in the step method.
7. 7Add to primary totals to get final production department overheads. Check they equal the control total.
8. 8If asked, compute overhead absorption rates using the final figures.

Quickest way: Matrix, equations, then check the total

Common mistakes in Secondary Distribution: Reapportionment of Service Costs

• Using the original percentages in the direct method without re-basing to 100.

  The table shows service to other service departments, and students forget these are ignored in the direct method.

  Fix: Add only the production department percentages and divide each by that sum. For example 50 and 30 become 5/8 and 3/8.

• Passing cost back to a department already closed in the step method.

  Students treat the question as reciprocal when it is meant to be one-way.

  Fix: Once a department is closed, ignore its percentage in later steps. Re-base the remaining percentages among departments still open.

• Closing the service departments in the wrong order in the step method.

  Students do not check which department serves most others.

  Fix: Follow the order stated. If not stated, start with the one serving the most departments, or with the highest cost.

• Forgetting to include the received cost when writing the equations in the simultaneous method.

  Students write S1 = primary cost of S1 only, or use the wrong percentage.

  Fix: Each equation is own primary cost plus the share received from the other service department. Check each percentage points in the right direction.

• Stopping repeated distribution too early, leaving a large balance.

  Students stop after one or two rounds to save time.

  Fix: Continue until the balance is very small, then give the remainder to production departments. Or switch to simultaneous equations.

• Not doing the closing total check.

  Students rush to the absorption rate.

  Fix: Add final production overheads and compare with the control total. A mismatch means a slip in the table.

Worked examples