Overheads of service departments

Service departments are those which are not engaged in production of any specific items

but provide support to production department e.g. stores department, repairs and

maintenance department, personnel department etc

The overheads charged to service department must further be reapportioned to the

production departments. This is called, secondary distribution of overhead or

reapportionment of service department overheads.

Methods of reappointment of service department overheads

There are main methods include

i. Repeated distribution method (continuous allocation method)

ii. Algebraic method (simultaneous equation method)

iii. Direct allocation method

iv. Sequential allocation method

Repeated distribution method

Under this method the overheads of the service department are transferred to the

production department on the basis of the benefit that the production department

enjoys from these service departments.

The process of transferring the overheads can begin by allocating the overheads of one

service department to other production departments before proceeding to the next

service department and so on.

If the service departments are engaged in reciprocal relationships i.e. service

departments provides services to one another, then in the process of reallocating the

overheads of any given service department, some overhead cost is transferred to a

previously closed service department and the process has to begin all over again.