A company has three production and two service departments. The brief of distribution of overhead is as under Productiondepts Rs. Servicedept R A. 9000. P. 702 B. 6000. Q. 900 C. 3000 Expenses of service department are charged on basis of following percentages A. B. C. P. Q P. 20%. 40%. 30%. - 10% Q. 40%. 20%. 21%. 22%. _ Approprtion the expense s of service department by repeated distribution method.?

Question

Answer

Repeating Distribution Method for Service Department Expenses

Step 1: Allocate the expenses of the service departments to the production departments based on the given percentages.

- For Service Department P:
- 20% of its expenses = 9000 x 20% = 1800
- 40% of its expenses = 702 x 40% = 280.8
- 30% of its expenses = 6000 x 30% = 1800
- For Service Department Q:
- 40% of its expenses = 900 x 40% = 360
- 20% of its expenses = 900 x 20% = 180
- 21% of its expenses = 6000 x 21% = 1260
- 22% of its expenses = 3000 x 22% = 660

Step 2: Add the allocated expenses of the service departments to the original expenses of the production departments.

- For Production Department A:
- Original expenses = 9000
- Allocated expenses from Service Department P = 1800
- Allocated expenses from Service Department Q = 360
- Total expenses = 11160

- For Production Department B:
- Original expenses = 6000
- Allocated expenses from Service Department P = 280.8
- Allocated expenses from Service Department Q = 1260
- Total expenses = 7540.8

- For Production Department C:
- Original expenses = 3000
- Allocated expenses from Service Department P = 1800
- Allocated expenses from Service Department Q = 660
- Total expenses = 5460

Step 3: Repeat the process until the allocated expenses from the service departments become insignificant.

- Repeat Step 1 and Step 2 using the new totals as the original expenses.
- Keep repeating until the allocated expenses from the service departments are virtually zero or negligible.

Repeat Distribution Method Explanation

The repeating distribution method is used to allocate the expenses of service departments to production departments. This method is based on the idea of iterative calculations, where the allocated expenses from the service departments are added to the original expenses of the production departments to find new totals. These new totals are then used to calculate the allocated expenses again until they become negligible. The repeating distribution method is used to ensure that the expenses of the service departments are allocated fairly to the production departments based on their usage of the services provided by the service departments.

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