Secondary Distribution (Re-apportionment) — Direct & Indirect Methods

# Secondary Distribution / Re-apportionment

After the primary distribution, service departments still have overhead totals. Since they don't produce units, their costs must now be transferred to the production departments so that ultimately all overhead is absorbed by units of production.

## Two Broad Approaches

### 1. Direct (Non-Reciprocal) Method

• Service departments allocate their total cost only to production departments.
• No role of service-to-service transfer is recognised, even if one service dept serves another.
• Simple, fast, but ignores inter-service-department services.

### 2. Indirect Methods (recognise service-to-service service)

These further split into:

#### (a) Non-Reciprocal — Step-Down Method

• Service depts apportion down a one-way chain (biggest first).

#### (b) Reciprocal — Recognise mutual service between service depts

Three techniques:

• Repeated Distribution Method
• Simultaneous Equation Method
• Trial & Error Method

## Quick Decision Guide