(a) Method of Repeated redistribution (or method of continued distribution or Attrition method):
In this case, to other service departments as well as to the production departments, apportionment of the cost of the first service department is made so that a nil balance is shown by the first service departments. Similarly, to other service departments as well as to the production departments, the apportionment of the total cost of the second service department including the share of the first is made so that a nil balance is shown by the second service department. Now a share of the second is received by the first service department & again apportionment of this amount has to be done. Until the balances of the service departments becomes very small, this process goes on, the balances are then transferred to the production departments only. In every case, on the basis of services rendered, apportionment is done.
Illustration 3:
A ltd has two service departments A & B & three production
departments X, Y & Z. On repeated redistribution basis, prepare a secondary distribution
summary from the under mentioned information.
A
($) B ($) X
($) Y ($) Z
($)
Total as per primary distribution 6000 7200 24000 12000 9000
Service rendered by: A - 15% 25% 10% 50%
B 10% - 20% 40% 30%
Thus, ignoring the fractions the amounts are: X-$27350; Y- $1597; Z = $ 14278
Method of Repeated Redistribution – an alternative approach:
For the purpose of reducing the labour which is involved in the repeated redistribution method which is illustrated above, this alternative approach is made. In this short approach, for the time being, only in respect of service departments, the process of repeated redistribution is to be carried out; the production departments being kept out of mind. Firstly, the total cost of each service department as per primary distribution should be shown. To the respective service departments, transfer of only that portion of the total cost has to be done, which other service departments has to borne by. In this way, until the cost of each service department is exhausted or becomes negligible, the process of redistribution will be carried out. Then only the ultimate amount of each service department shall be obtained. Finally, on the basis of the percentage given, a statement showing the redistribution of the total service department costs is to be drawn up.
Illustration 4:
Taking the particulars of illustration 3, show the redistribution in respect of service department A & B under alternative approach method of repeated redistribution.
Solution: (Calculation to the nearest rupee) A ($) B ($)
Cost as per primary distribution 6000 7200
Service Departments: A 15%
to B (6000) 900
B 10%
to A 810 (8100)
A 15%
to B (810) 122
B 10%
to A 12 (122)
A 15%
to B (12) 2
Total (Ignoring the negative figures) 6822 8224
(Thus, the result shall be the same, whatever way is followed.)
(B) Simultaneous Equation method:
The desired result can be obtained mathematically, by applying the data as in illustration 3 relating to the service departments in simultaneous. This is explained below:
Since, to the extent of 10%, A gets services from B, the total cost of A represents its own cost plus 10% of B’s cost. Similarly, since to the extent of 15%, services are received by B from A, the total cost of B represents its own cost plus 15% of A’s cost. Let the total cost of A department be a & the total cost of B department be b.
Putting the above in equation we get,
a = $ 6000 + 10% of b or, a = 6000 + (10b/100)……………………….. (i)
b= $ 7200 + 15% of a or, b = 7200 + (15a/100)……………………….. (ii)
or, 100a – 10b = $ 600000 from (i)
-15a + 100b = $ 720000 from (ii)
Or, 1000a – 100b = $ 6000000 multiplying (i) by 10 …………………… (iii)
-15a + 100b = $ 720000 …………………………………………. (iv)
985a = $ 6720000 adding (iii) & (iv)
Therefore, a = $ 6720000/985 = $ 6822.34 or, 6822 (approx)
Putting the value of a in equation (i) we get,
100*6822.34 – 10b = 600000
Or, 682234 – 600000 = 10b
Or, 82234 = 10b or, b = 82234/10
Therefore b= $ 8223.40 or, $ 8223
(c) Trial & Error method:
In this case, on the basis of services rendered, the apportionment of the cost of each service department is to other service departments only, is done. Each service department, after its own cost has been apportioned, gets share from the other service departments, as because there is a reciprocal service. So until the amount becomes negligible, the process has to be repeated. To the production departments, the apportionment of the cost ultimately coming to the share of each service department, being the total of the shares coming from a number of apportionments, is made. When there is an involvement of two or three interlocked service departments, this method becomes more suitable.
Illustration 5:
Show the working under Trial & Error method, taking the same particulars as in illustration 3 above.
The two amounts $ 6822.33 & $ 8223.35 are subsequently apportioned to productions X, Y & Z.
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