Q62. What is re-apportionment of overheads? What are its methods?
Ans. Service Department expenses are apportioned between production department and it is known as re-apportionment of overhead.
Methods for re-apportionment of overhead:
- Direct Redistribution Method: In this method, the cost of service department are apportioned only between Production department on agreed basis neglecting Inter-Service Department cost.
- Non Reciprocal or Step Ladder Method: In this method, service department which gives higher percentage service to another service
department are apportioned first between all the departments including service two other service department. after this, the service department which provide second higher percentage service to other serviced departments is apportioned between all other departments except the service department which was already apportioned before it. Such procedure continues till the cost of all service department is apportioned. The cost of last Service Department will be apportioned only between production departments.
- Simultaneous Equation (Reciprocal) Method: Search method of re -apportionment is used only where there is two Service Department. Its use equation method for calculating exact cost of each Service Department. By solving equation, exact cost of each service department becomes known and it is divided between production departments an agreed percentage basis.
- Repeated Distribution (Reciprocal) Method: According to this method, service Department cost are Re apportioned between all other department (production as well as service) according to the agreed percentage and this process is repeated until the the cost of service department are fully exhausted.