Repeated Distribution Method
Repeated distribution method is a technique in which costs of each service department are repeatedly allocated to other departments according to the given percentages until the balance left in service departments reaches zero.
Assume a company has a certain number of production departments and two service departments, A and B, which benefit from each other. In order to reallocate the service department costs to production departments using repeated distribution method, we follow the steps given below:
- Start by allocating the higher service cost first, let it be A.
- Allocate department B's costs to all production departments and department A.
- Since the balance in department A no longer remains zero after reallocation of department B's cost we have to repeat the process by allocating department A's cost again to production departments and department B.
- This process of reallocating the service department costs is repeated until the balance remaining in any service department becomes negligible.
The following example illustrates the repeated distribution method:
γ ltd. has three production departments (P, Q and R) and two service departments (X and Y). The total overheads for the departments are given below:
The reallocation percentages of the service departments' costs are given below:
Reallocate the service department costs in the specified percentages using repeated distribution method.
|Dept. X Reallocation||4,400||5,500||5,500||(22,000)||2,200|
|Dept. Y Reallocation||10,050||12,060||12,060||6,030||(40,200)|
|Dept. X Reallocation||1,206||1,508||1,508||(6,030)||603|
|Dept. Y Reallocation||151||181||181||90||(603)|
|Dept. X Reallocation||18||23||23||(90)||9|
|Dept. Y Reallocation||2||3||3||1||(9)|
We stop when the balance left in service departments becomes negligible.
Written by Irfanullah Jan