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:

1. Start by allocating the higher service cost first, let it be A.
2. Allocate department B's costs to all production departments and department A.
3. 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.
4. This process of reallocating the service department costs is repeated until the balance remaining in any service department becomes negligible.

Example

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:

P$35,000 Q$64,000
R$19,000 X$22,000
Y\$38,000

The reallocation percentages of the service departments' costs are given below:

DepartmentPQRXY
X20%25%25%10%
Y25%30%30%15%

Reallocate the service department costs in the specified percentages using repeated distribution method.

Solution

Department P Q R X Y
Allocated Overheads 35,000 64,000 19,000 22,000 38,000
Dept. X Reallocation 4,400 5,500 5,500 (22,000) 2,200
Total 39,400 69,500 24,500 0 40,200
Dept. Y Reallocation 10,050 12,060 12,060 6,030 (40,200)
Total 49,450 81,560 36,560 6,030 0
Dept. X Reallocation 1,206 1,508 1,508 (6,030) 603
Total 50,656 83,068 38,068 0 603
Dept. Y Reallocation 151 181 181 90 (603)
Total 50,807 83,248 38,248 90 0
Dept. X Reallocation 18 23 23 (90) 9
Total 50,825 83,271 38,271 0 9
Dept. Y Reallocation 2 3 3 1 (9)
Total 50,827 83,274 38,274 1 0

We stop when the balance left in service departments becomes negligible.

Written by Irfanullah Jan