Redistribution of Service Department Costs:
To the jobs, production units, processes or operations,
the factory overhead expenses are to be ultimately charged. Services are rendered by
the service departments to the production departments where production of the products
are taken place, execution of the jobs are being done, operations are being done or
processes are being carried on. So, for the purpose of facilitating charging of all
factory overheads to jobs, products, processes or operations, apportionment of service
department costs are to be done to the production department. This apportionment is
known as secondary distribution.
The usual bases used for secondary distribution are:
Cost of the service Departments Basis
1. Personnel department No.
of workers who are direct, No.
of
employees working etc.
2. Time-keeping No.
of workers who are direct, No.
of
employees working etc.
3. Canteen & welfare No.
of workers who are direct, No.
of
employees working etc.
4. Hospital & dispensary No.
of workers who are direct, No.
of
employees working etc.
5. Power house (electric lighting cost) Area of the floor, wattage, No. of electric points,
6. Power house (electric power cost) Horse
power, Kwh.
Machine hours Kwh * machine hours *
Horse power
7. Maintenance & repair shops; Planning & Direct
labour hours, Direct labour
Progress; & Tool room wages,
Machine hours, Asset value * Hours worked.
8. Stores Department Weight or Value of materials which are issued, No. of requisitions.
9. Transport Department Truck
hours, tonnage of Truck, Tonnage handled, milage of Truck, ton-hours of ruck,
No. of packages which are of standard size.
10. Inspection Inspection hours
11. Fire protection Capital Values
Notes:
(1) Apportionment of repairs which are included in the cost of repairs shop , cost of building maintenance which are included in maintenance shop cost etc. are to be done on the basis of capital values.
(2) For the purpose of selection of the base; economy, practicability, equability, & reliability are the matters which are needed to be considered.
The following are the different ways by which the apportionment of the costs of service departments may be made to the production departments:
(A) Straight apportionment of Service department cost to Production departments:
Here, the services which are rendered to other service departments by one service department are needed to be ignored. Assumption is made that to the production departments only, services are rendered by each service departments & hence, only to the production departments, distribution of the cost of the service department (including materials & wages of service departments) is done.
Illustration1:
Show the secondary distribution on direct redistribution method, on the basis of the under mentioned particulars relating to the production departments, A1, A2 & A3 & the service departments –canteen, power house, store, time-keeping & accounts & repair shop.
Production Departments Cost after primary distribution ($)
A1 40000
A2 36000
A3 50000
126000
Service department’s costs:
Canteen 3000
Power house (lighting) 2400
Power house (power) 8000
Stores 7200
Time-keeping & accounts 6000
Repair shop 9000
35600
Other information: A1 A2 A3
No of employees 60 50 40
No of light points 12 16 20
Horse power of machines 600 400 600
No of requisitions 8000 6000 10000
Value of assets
($) 200000 300000 400000
In this case, it is recognized that services are rendered by one service department to other service departments as well as to the production departments, but the reciprocal services are not recognized for the purpose of distribution. A distribution statement or analysis sheet is prepared under this way of apportionment, showing in the descending order of their serviceability, service departments - at the top, that service department is being placed which rendered services to almost all other service departments & at the bottom is placed that service department which rendered services to the smallest number of the service departments. On a suitable basis, the apportionment of the cost of the first service department to other service departments as well as to the production departments is done; thereby closing the first service account. In this way, the apportionments of the costs of other service departments are also made, one after another. Thus, ultimately to the production departments all the service departments’ costs are apportioned. The other name of this method is step method.
Illustration 2: From the following particulars, show
the secondary distribution on non-reciprocal basis:
Clerical Stores Tool Production
shops
Services room X Y Z
Direct Labour cost ($) - 12500 25000 45000 30000 25000
Indirect materials ($) 15000 40000 35000 20000
Machine hours 50000 30000 20000
Clerical services ($) Stores ($) Tool room ($)
Service departments costs as per 13750 9750 5000
primary distribution
Production department costs as X
($) Y
($) Z
($)
Per primary distribution 40250 35650 33800
Notes:
(1) All other service departments & production department received clerical services.
(2) Tool room & production departments are served by the stores department.
(3) Only production departments are served by tool room department.
(B) (ii) Apportionment made on the basis of Reciprocal service:
Here recognition is made of the reciprocal services amongst the service departments. Therefore, on this basis, the apportionment is more complicated. For apportionment on this basis, three distinct methods are used namely:
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