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Accounting for overheads

3.1 Repeated distribution method

In the illustration of apportionment and reapportionment, there was only one service
cost centre. In many examples there will be more than one and this can create a
complication when it comes to reapportionment of overheads from the service cost
centres to the production cost centres. The complication arises when the service cost
centres use each other’s services.

For example, if two services cost centres were canteen and maintenance, it is
possible that the maintenance staff could use the services of the canteen and should
therefore pick up a share of the canteen’s costs. It is also possible that the canteen
uses the services of the maintenance department and should therefore also pick up a
share of the maintenance department costs. This is known as reciprocal servicing.

Using the repeated distribution method the service cost centre costs are apportioned
backwards and forwards between the cost centres until the figures become very
small. At this stage it might be necessary to round the last apportionments.

Consider the following:

A manufacturing company has two production cost centres (P1 and P2) and two
service cost centres (S1 and S2). The following shows the work done by the two
service cost centres:

P1 P2 S1 S2
Work done by S1 55% 35% 10%

Work done by S2 30% 65% 5%

After the initial allocation and apportionment of overheads, the totals for each cost
centre were:
P1 P2 S1 S2

$ $ $ $
Overhead cost 150,000 205,000 21,000 15,000

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