TT Ltd. has two production departments and P1 and P2 and two service departments S1 and S2.

Expenses of these departments are as follows:

P1 ₹ 51837, P2 ₹ 12163 ,S1 ₹ 40000 and S2 ₹ 16000
Expenses of service departmetns are to be apportioned as follows
Particulars P1 P2 S1 S2
S1 50% 40% 10%
S2 30% 50% 20%
Apportion the cost of service departments.

Solution:
Repeated distribution method

Overheads distribution statement

Production Dept. Service Dept.
Item P1 (₹) P2 (₹) S1 (₹) S2 (₹)
Overheads as per primary distribution 51837 12163 40000 16000
Cycle I
Apprtionment of cost of S1 to P1,P2, S2 (5:
4:1) 20000 16000 (40000) 4000
Apportionment of cost of S2 to P1,P2,S1
(3:5:2) 6000 10000 4000 (20000)
Cycle II
Apprtionment of cost of S1 to P1,P2, S2 (5:
4:1) 2000 1600 (4000) 400
Apportionment of cost of S2 to P1,P2,S1
(3:5:2) 120 200 80 (400)
Cycle III
Apprtionment of cost of S1 to P1,P2, S2 (5:
4:1) 40 32 (80) 8
Apportionment of cost of S2 to P1,P2(3:5) 3 5 (8)
Total overheads 80000 40000 0 0

Simultaneous Equation Method

X= 40000+20%Y
Y=16000+10%X
Let X is total overheads for S1 and Y is total Overheads for S2
X= 40000 +20% Y
Y= 16000 +10% X

X = 40000 + 0.2 Y
Or X = 40000 + 0.2 (16000 + 0.1 X)
Or X =40000 + 3200 + 0.02 X
Or X = 43200 + 0.02 X
Or X -0.02 X =43200
Or 0.98 X = 43200
X = 43200/0.98
X = 44082 (Approx.)
By using the value X in Y = 16000 + 10% X
Y = 16000 + 4408
Y = 20408 (Approx.)
Total overheads for S1 44082
Total overheads for S2 20408

Overheads distribution summary

Production Departments
P1 (₹) P2 (₹)
Overheads as per primary distribution 51837 12163
Apportionment of 90% of overheads of S1
to P1,P2 (5:4) 22041 17633
Apportionment of 80% of overheads of S2
to P1, P2 (3:5) 6122 10204
Total 80000 40000

Trial and Error Method

Total Cost of each service departments.

Items S1 (₹) S2 (₹)
As per primary distribution 40000 16000
Apportionment of cost of S1 to S2 (10%) 4000
Apportionment of cost of S2 to S1 (20%) 4000
Apportionment of cost of S1 to S2 (10%) 400
Apportionment of cost of S2 to S1 (20%) 80
Apportionment of cost of S1 to S2 (10%) 8
Apportionment of cost of S2 to S1 (20%) 2
Total 44082 20408

Overheads distribution summary

Production departments
Item P1 (₹) P2 (₹)
As per primary distribution 51837 12163
Apportionment of 90% of overheads of S1
to P1,P2 (5:4) 22041 17633
Apportionment of 80% of overheads of S2
to P1,P2 (3:5) 6122 10204
Total overheads of production dept. 80000 40000