Repeated distribution overhead apportionment method
1.1 Introduction
Definition: Repeated distribution overhead apportionment method is a type of reciprocal overhead apportionment method under secondary distribution which advocates that for service department associated overhead should be distributed and re-distributed in a systematic manner until all overhead costs associated to the service department is fully exhausted.
This method is characterized by indiscriminative continuous apportionment of a service department overhead cost to both production departments and other service departments to exhaustion. Then, considering the next service department overhead cost which is also distributed in an indiscriminative manner to both the production departments and the other remaining service department. This process continues until the last service department has zero amount.
7 steps of repeated overhead apportionment
The following SEVEN steps are helpful stages to guide you to compute the total overhead cost distributed to each production department where there are service department serving each other and at the same time serving the aforesaid production departments.
Step 1: Bottom line overhead cost allotment
The first step to undertake is to allot the direct overhead cost to both the production and the various service departments.
Step 2: 1st Re-distribution of overheads of the first service department (service department L) to all the production plus the alternate-two (reciprocal) service department (service department M).
Step 3: Summation of the total overhead cost after the first re-distribution of the service department overhead costs.
Step 4: 2nd Re-distribution of overheads of the second service department (service department M) to all the production plus the alternate-one (reciprocal) service department (service department L).
Step 5: Repetition of step 3 on Summation of the total overhead cost after the second re-distribution of the service.
Step n: nth Re-distribution of overheads of the nth service department (service department L) to all the production plus the alternate- nth (reciprocal) service department (service department M).
Step 7: Repetition of step 3 on Summation of the total overhead cost after the nth re-distribution of the service.
NB: The steps aforementioned are to be repeated until all the distributable overheads are finally distributed to production department.
Example
A food processing organization has THREE and TWO production departments and service departments respectively. The overhead costs for the three departments were assigned as follows
Required
Show how the overheads are fully distributed to the three production departments using;
i). Repeated distribution overhead apportionment method.
Solution
Brief Explanation
This is the point, that the re-apportionment of the service department overhead cost is proportionately allocated to the production departments and the reciprocal service department (i.e., the other service department) in the first round or phase. Then in round two, the reciprocal service department’s overhead cost which is directly allocated overhead plus the apportionment from the other service department, is distributed to all the departments. This process continues up to the end until all the service departments have zero overhead costs.
So, as per this case, the total overhead cost for the three departments is
$690,000.
Advantages of repeated distribution overhead apportionment method
The following are the advantages of repeated distribution overhead apportionment approach;
1). Incorporates the inter-service elements falling under another service department.
Repeated distribution method incorporates the inter-service elements falling under another service department. The method/approach ensures that there is no pending overheads from one service department to another one. This is advantageous for there is no omissions.
2). It is unbiased
Repeated distribution method is a scientific model which ensures that the apportionment of overheads is not skewed towards one side of the departments. In other words, there is distribution balance.
3). Increased correctness
Repeated distribution method is an approach that brings about appropriateness in data collection. This is because the aspect of repeating again and again ensures that the right amount of overhead is apportioned.
4).Enhances competition
Repeated distribution overhead apportionment method helps in proper apportionment of overheads which reduces the risk of over valuing the total cost which in turn may skyrocket the selling price.
Disadvantages of repeated distribution overhead apportionment method
The short comings of repeated distribution overhead apportionment method are as discussed below;
1). High chances of overlapping costs.
Repeated distribution overhead apportionment method has a characteristic of being repetitive in apportionment. This may result to apportioning of overhead cost more than once which can be adverse.
2). Prone to miscalculations.
Repeated distribution overhead apportionment method is subject to wrong calculation which can be transferred to wrong pricing of the final product.
3). Cumbersome.
Repeated distribution overhead apportionment method is a sophisticated method and time consuming.
