## Secondary Distribution of Overheads

After primary distribution, overheads are totalled for every department. Secondary distribution (re-distribution) transfers service department overheads onto the production departments (since only production departments make the product).

### Format

Service department totals (X, Y, Z) are re-apportioned to Machining, Assembling, Finishing.
After re-distribution, service department balances become nil; production departments show 'Overheads as per Secondary Distribution'.

### The methods at a glance

Method	Traffic	Assumption
Direct Re-distribution	NO traffic	Service depts serve only production depts; inter-service service is ignored even if it exists.
Step Ladder / Non-reciprocal	ONE-way traffic	A service dept can serve all departments (incl. other service depts) but cannot receive service from a dept it has already served.
Reciprocal Service	TWO-way traffic	A service dept can both give and receive service to/from other service depts.

### Reciprocal Service Method — three sub-methods

1. Simultaneous Equation Method — first find the total cost of each service department by solving equations, then redistribute to production departments on given percentages.

2. Repeated Distribution Method — keep distributing service-dept costs to other service and production departments on agreed percentages, repeating until service-dept figures are exhausted or negligibly small.

3. Trial and Error Method — apportion one service centre's cost to another, then the second (plus the share it received) back to the first; repeat only among service departments until the amount becomes negligible. Add up each service centre's total apportioned cost, then redistribute those totals to the production departments.

### Choosing a method

Service departments serve only production → Direct.
Service departments serve each other but not mutually → Step Ladder.
Service departments serve each other mutually → Reciprocal (use Simultaneous Equation for 2 service depts; Repeated Distribution / Trial & Error for more).

Worked example

### Example 1

Direct method intuition: With service depts X and Y, ignore any X↔Y service. If X's cost is ₹60,000 and production depts use X in ratio 3:2, redistribute ₹36,000 and ₹24,000 to those production departments only.

### Example 2

Step Ladder intuition: Rank service depts by service given. Close the one serving the most first, spreading its cost to all departments below it (including other service depts), then the next — never sending cost back up the ladder.

### Example 3

Reciprocal (Simultaneous Equation) intuition: If X = 60,000 + 0.10Y and Y = 40,000 + 0.20X, solve the two equations to get the 'true' total cost of X and Y, then apportion those totals to production departments.

⚠️ Common exam mistakes

Using the Direct method when service departments genuinely serve each other — it ignores inter-service service (NO traffic) and distorts results.
In the Step Ladder method, sending cost back to a service department that has already been closed off — it is strictly one-way traffic.
Confusing the three reciprocal sub-methods; Simultaneous Equation is usually easiest for two service departments, Repeated Distribution/Trial & Error for more.
Forgetting that after secondary distribution every service department balance must become zero.
In Trial & Error, redistributing to production departments before the inter-service apportionment has become negligible.

Reference:

Now that you've read this — what's next?

Move from understanding → mastery in 3 clicks. Each option below picks up from this lesson's topic.

🔥 Drill 5 Qs on this → ✍️ Adaptive practice →

Secondary Distribution of Overheads — Direct, Step Ladder and Reciprocal Service methods

Worked example

⚠️ Common exam mistakes