Skip to content

Cost Accounting · Overheads

Re-apportionment of Service Department Costs: Direct, Step and Reciprocal Methods

Updated 10 October 2026 · Fact-checked

Re-apportionment (secondary distribution) moves the overhead of service departments, such as stores or maintenance, to the production departments that use their services. You can use the direct method, the step method or the reciprocal method with simultaneous equations. After it, only production departments carry overheads.

Understand Re-apportionment of Service Department Costs

A factory has production departments, which work on the product, and service departments, which only support them. Examples are the canteen, stores, maintenance and power house. Units are never made in a service department, so its cost cannot be absorbed into products directly. It must first be moved to production departments.

The overhead is first allocated and apportioned to all departments. This is the primary distribution. Then each service department's total is shared among the departments that use its service, on a suitable basis. This is secondary distribution, or re-apportionment. Typical bases: stores - value or number of requisitions; maintenance - hours worked; canteen - number of employees; power - kWh or horsepower hours.

There are three methods. In the direct method, service costs go only to production departments. Services given by one service department to another are ignored. In the step (or repeated-step) method, you distribute the service department that serves the most others first, to all departments after it. Costs never go back to a department already cleared. In the reciprocal method, service departments serve each other both ways, so you recognise the mutual service fully. You solve it with simultaneous equations, or by repeated distribution until the balance is negligible.

The total overhead must not change. The sum over the production departments after re-apportionment must equal the sum of all departments before it. Use this as your check.

Key rules to remember

Direct method share
Share of production dept = Service dept cost × (Dept's basis ÷ Total basis of production depts only)
Ignore other service departments when finding the total basis.
Step method share
Share = Cost to be cleared × (Dept's basis ÷ Total basis of all departments not yet cleared, excluding the one being cleared)
Once a department is cleared, it receives nothing later.
Reciprocal equations
S1 = Own primary cost + (% of S2's service going to S1) × S2; S2 = Own primary cost + (% of S1's service going to S2) × S1
S1 and S2 are the total costs to be distributed, including charges received from each other.
Final check
Σ production dept overhead after re-apportionment = Σ primary overhead of all departments
Holds for all three methods.

How to solve Re-apportionment of Service Department Costs questions

Use this layout for any re-apportionment question. Work in a columnar statement with departments across the top.

  1. 1Write the primary distribution totals for every department in the first row. Total them and keep that figure for the final check.
  2. 2Read the question and note the basis for each service department and which departments it serves. Note whether the method is stated.
  3. 3Convert each basis into percentages or fractions for each service department. Check each row adds to 100%.
  4. 4Direct method: share each service cost over production departments only, using their relative basis.
  5. 5Step method: clear the department named first, or the one serving most departments, to all remaining departments. Then clear the next, and so on.
  6. 6Reciprocal method: form one equation per service department with its primary cost plus its share of the other's total. Solve for the totals, then distribute those totals.
  7. 7Add up the columns. Show production department totals after re-apportionment.
  8. 8Check that the production total equals the primary total. Then use the totals for overhead rates if asked.

Quickest way: Equation-first method for reciprocal problems

When to use it: Use when two service departments serve each other and the question says reciprocal, or says simultaneous equations.

  1. Write the two equations at once, with percentages as decimals.
  2. Substitute one into the other to get a single equation in one unknown.
  3. Solve, then find the second unknown.
  4. Distribute each total to the other departments only, using the percentages. Do not redistribute to the service department itself.
  5. Add the columns and check against the primary total.

Common mistakes in Re-apportionment of Service Department Costs

  • In the direct method, including service departments in the basis total.

    Students copy the full row of percentages without removing service departments.

    Fix: Recalculate the base using production departments only. For example, shares of 40% and 30% become 4/7 and 3/7.

  • In the step method, sending cost back to a department already cleared.

    The table shows a percentage in that column and it feels wrong to leave it.

    Fix: Strike out cleared departments. Redistribute only over the departments that remain.

  • Writing reciprocal equations with the primary cost only.

    Students forget that the total to be distributed includes what was received from the other service department.

    Fix: Write S1 = primary + share × S2 each time. Use the totals, not the primary cost, for distribution.

  • Choosing the wrong order in the step method.

    No rule is applied; students go in the order the departments appear.

    Fix: Start with the department serving the most others, or with the largest cost if the question does not say. State your order in the answer.

  • Skipping the final reconciliation.

    Rounding errors and slipped decimals stay hidden without it.

    Fix: Compare production totals to the primary total. A mismatch means an error in a share or equation.

Worked examples

Example 1

A factory has production departments P1 and P2 and service departments S1 (stores) and S2 (maintenance). Primary overheads: P1 ₹3,00,000; P2 ₹2,00,000; S1 ₹60,000; S2 ₹40,000. S1 services are used P1 50%, P2 30%, S2 20%. S2 services are used P1 40%, P2 40%, S1 20%. Apportion service costs using (a) the direct method and (b) the reciprocal method.

Show the solution
  1. Primary total = 3,00,000 + 2,00,000 + 60,000 + 40,000 = ₹6,00,000.
  2. (a) Direct method. S1 over P1 and P2 in ratio 50:30 = 5:3. P1 gets 60,000 × 5/8 = ₹37,500. P2 gets 60,000 × 3/8 = ₹22,500.
  3. S2 over P1 and P2 in ratio 40:40 = 1:1. Each gets ₹20,000.
  4. P1 = 3,00,000 + 37,500 + 20,000 = ₹3,57,500. P2 = 2,00,000 + 22,500 + 20,000 = ₹2,42,500. Total ₹6,00,000, which checks.
  5. (b) Reciprocal method. Let S1 and S2 be the total costs. S1 = 60,000 + 0.2 S2. S2 = 40,000 + 0.2 S1.
  6. Substitute: S1 = 60,000 + 0.2(40,000 + 0.2 S1) = 60,000 + 8,000 + 0.04 S1. So 0.96 S1 = 68,000 and S1 = ₹70,833.33 (approx.).
  7. S2 = 40,000 + 0.2 × 70,833.33 = 40,000 + 14,166.67 = ₹54,166.67.
  8. S1 to P1 = 50% × 70,833.33 = 35,416.67; to P2 = 30% × 70,833.33 = 21,250.
  9. S2 to P1 = 40% × 54,166.67 = 21,666.67; to P2 = 21,666.67.
  10. P1 = 3,00,000 + 35,416.67 + 21,666.67 = ₹3,57,083.34. P2 = 2,00,000 + 21,250 + 21,666.67 = ₹2,42,916.67. Total ≈ ₹6,00,000, which checks (difference is rounding).

Answer: Direct method: P1 ₹3,57,500 and P2 ₹2,42,500. Reciprocal method: P1 ≈ ₹3,57,083 and P2 ≈ ₹2,42,917. Both total ₹6,00,000.

Example 2

Using the same data as the previous example, apportion by the step method, clearing S1 first and then S2.

Show the solution
  1. Clear S1 (₹60,000) to P1, P2 and S2 in the ratio 50:30:20. P1 gets ₹30,000. P2 gets ₹18,000. S2 gets ₹12,000.
  2. S2 now holds 40,000 + 12,000 = ₹52,000. S1 is cleared and gets nothing back.
  3. Clear S2 over P1 and P2 only. The ratio is 40:40 = 1:1. Each gets ₹26,000.
  4. P1 = 3,00,000 + 30,000 + 26,000 = ₹3,56,000.
  5. P2 = 2,00,000 + 18,000 + 26,000 = ₹2,44,000.
  6. Check: 3,56,000 + 2,44,000 = ₹6,00,000, equal to the primary total.

Answer: Step method: P1 ₹3,56,000 and P2 ₹2,44,000, total ₹6,00,000.

Exam tips

  • Read the method asked. If the question says nothing, say which method you use and why. Reciprocal is the most accurate if the departments serve each other.
  • Always draw the columnar statement. Marks are given for each correct transfer line even if a later figure goes wrong.
  • In MCQs, the quick test is the total: production overhead after re-apportionment equals total primary overhead. Use it to eliminate options.
  • Reciprocal problems in the exam often ask for the total cost of a service department. That is the equation answer, before distribution.
  • Carry the figures forward to the overhead absorption rate, since the question often continues into the rate per hour.

Practice questions from Overheads

Re-apportionment of Service Department Costs: frequently asked questions

What is the difference between primary and secondary distribution of overheads?

Primary distribution allocates and apportions overheads to all departments, including service departments. Secondary distribution, or re-apportionment, moves service department costs to production departments. After it, only production departments carry overheads.

Which is better, the step method or the direct method?

The direct method is simpler but ignores services between service departments. The step method recognises some of them, in one direction. Neither is as accurate as the reciprocal method when departments serve each other.

How do I solve a reciprocal service department problem?

Write one equation for each service department: its own primary cost plus its share of the other's total. Solve for the totals, then distribute each total to the other departments by the given percentages. Check that production totals equal the primary total.

Can I use repeated distribution instead of simultaneous equations?

Yes, if the question allows it. You distribute again and again until the remaining amount is negligible. It is slower and the answer is approximate. Equations are quicker and exact.