Page 18 - Cost Accounting - Ready Reckoner

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Secondary Distribution Summary (SDS):

Service department cost is reallocated to production departments based on
services utilised by production department.

Services can be:

1. Reciprocal Services – where service departments mutually serve each other.
2. Non reciprocal Services – where service department do not mutually serve each
other.

Methods of allocation:

i. Direct Distribution Method:
Overheads of service departments are directly distributed to production
departments in the given ratio.
Reciprocal Services:

ii. Repeated Distribution Method – where service department cost is allocated to all
departments in the given ratio and the step is repeatedly followed until overheads in
service departments becomes zero.
iii. Simultaneous Equation Method – if there are two service departments in an
organisation, a linear equation for total overheads of the service departments is
formed and values of X and Y are found. Thus found X and Y values are allocated to
production departments in the given ratio.
Non reciprocal Services:

iv. Step Ladder Method: Allocation of service department cost is made in an order of
most service providing department first and in that order.
v. Trail and Error Method: (for theory only)
At the end of the Secondary Distribution Summary, total overheads of only
production departments are found.