Reciprocal overhead apportionment method: introduction; types of types of reciprical methods; advantages and disadvantages
1.1 Introduction
To be able to comprehensively understand the concept of reciprocal overhead apportionment method, we have considered basically the different scenarios or disciplines which use the term “reciprocal”. So, let us look at some of them from authentic sources before we define in unison or in agreement the sub topic of our concern, “reciprocal overhead apportionment method”.
1.2 Definitions
The following are some of the key reliable definitions that will make you appreciate the main definition of our concern. Look at them.
1.2.1 Definition-1
“A reciprocal action” or arrangement involves two people or groups of people who behave in the same way or agree to help each other and give each other advantages (Source-UK, British English pronunciation).
1.2.2 Definition 2
“Reciprocal”-A number that, when multiplied by another number, results in 1(Source-UK, British English pronunciation).
For example, reciprocal means the reverse or opposite of a variable as compared to another. For instance, the reciprocal of 2 is and the reciprocal of is 2 (Accountingnest.com).
1.2.3 Definition 3
“Reciprocal”-involving two people or organizations who agree to help each other by behaving in the same way or by giving each other similar advantages (Cambridge Academic Content Dictionary © Cambridge University Press).
1.2.4 Definition 4
“Reciprocal motion”, movement in one direction is balanced by a return movement (Cambridge English Corpus).
Therefore,
Reciprocal Overhead Apportionment Method is an approach or technique of distributing overhead costs amongst departments which serve one another in one way or another. Such that one department say department “A” uses its resources to serve department “B” and on the other hand, equally or almost equally the latter department (of course B) uses its resources to serve department “A”. This is a reciprocal relationship.
This is common in organizations with service departments. So, in such circumstances, some appropriate weights have to be assigned to such departments so as to ensure that the net service overhead cost of the concerned service department is considered for the apportionment. This method of apportionment is contrary to direct and the step overhead apportionment cost method.
1.3 Types of reciprocal overhead apportionment methods
There are three such reciprocal methods which are namely: -
1.3.1 Repeated distribution overhead apportionment method.
1.3.2 Simultaneous equation overhead apportionment method.
1.3.3 Trial and error overhead cost apportionment.
Advantages of reciprocal overhead apportionment method
The following are the advantages of reciprocal overhead apportionment approach;
1). Inter-service overhead cost apportionment is allowed.
Reciprocal overhead apportionment method allows for forth and back apportionment of overheads and this ensures that there is not double accounting or over or under apportionment of the costs thereof.
2). It is comprehensive/detailed.
Reciprocal overhead apportionment method is well elaborated such that no room for corrupting the approach either to under or over apportion the overhead cost.
3). Increased objectivity.
Reciprocal overhead apportionment method is not biased for the formula used to compute amount to be apportioned is well thought model. this makes the results gotten thereof more reliable hence increasing reliability.
4). Level of accuracy is high.
Reciprocal overhead apportionment method is most of the times correct in estimating the amount of overhead cost to be assigned to a particular department.
5). Comparability is possible.
Reciprocal overhead apportionment method allows the producer to compare past apportionment trends for the method gives reliable basis.
6). Effective pricing tool.
Reciprocal overhead apportionment method is reliable in pricing the end product of an organization. The method helps in arriving at the total cost which is believable to act as a base to set selling price.
Disadvantages of reciprocal overhead apportionment method
The short comings of reciprocal overhead apportionment are as discussed below;
1). Complicated method.
Reciprocal overhead apportionment method is long and time consuming. Hence not very much popular amongst producers
2). Prone to mistakes.
Reciprocal overhead apportionment method is subject to gross mistakes which can be carried forward to pricing policy.
3). Not popular
Reciprocal overhead apportionment method is not user friendly therefore it does not benefit many users.
