Secondary Distribution of Overheads IN, Cost Accounting (Part - 1) Video Lecture | Cost Accounting - B Com

distribution of overheads in that there
are two methods are there first one is
primary distribution and second one
second a distribution so in this video
we are going to say secondary
distribution before that let me explain
what is the basic concept of
distribution of overheads so
distribution of overheads means
generally in an organization will have a
different departments so all the
departments are classified into two
categories first one is production
departments and the another one is
service departments okay so after
incurring all the expenses organization
need to find the actual expense incurred
for each and every department separately
so in that we have primary distribution
so primary distribution means or here
will have a production department
service department known so all the
expenses incurred for each and every
department either wholly or based on
certain basis the expenses will be
apportioned or distributed among various
production and service department
directly this is called as primary
distribution this we have already
discussed in the separate video so now
let us see secondary distribution
secondary distribution means after
completing the primary distribution of
overhead expense the next step in this
regard is redistribution of service
department cost among the different
production department so this process is
known as a secondary distribution or
reapportionment in the second
redistribution or reapportionment it has
five different methods the first one is
direct redistribution and second
one-step method and third one reciprocal
service method in that reciprocal
service method again we have three
methods
repeated distribution method
simultaneous equation method and the
last one is trial and error method we
will see the each and every methods with
the help of a separate problems see the
problem for first method direct
redistribution direct redistribution
means under this method the cost of
service
mint is apportioned directly to the
production department only ignoring the
service rendered by one service
department to other service department
here the entire service department cost
is directly apportioned to production
department based on certain bases now I
am going to explain clearly look at this
problem
big Company Limited has three production
departments and four service departments
the expenses for these departments as
the primary distribution summary where
three production departments a B and C
sixty thousand fifty two thousand and
forty eight thousand and then service
departments are stores timekeeping and
accounts power and canteen these are the
four different department which comes
under service department so cost or
given total cost both production
department cost and service department
cost total 1 lakh 79 200 now look at the
basis the following information also
available in respect of the production
department so three production
departments or they know a B and C
horsepower of machine is given for each
and every department separately
600 600 and 400 and number of workers
under a department 40 B 30 and C 30 and
the last one value of stores
requisitioned 5000 for a 3,000 for B and
2004 C so these are the some information
which is related to production
departments so now we are going to
allocate service department cost to
production department based on certain
basis you have to choose appropriate
basis for each and every service
department cost so look at the service
department cost first one Stosur so this
can be apportioned based on value of
stores required for department a 5 for
department B 3 for Department C 2 so 5
is to 3 is to 2 this is a basis for
apportionment of stores to production
department
then second one timekeeping and accounts
up so this will be a portion based on
number of workers for a 44 be 34 c-13 oh
so 4 is to 3 is to 3 the next one power
3200 shall be apportioned based on Haas
bar off mission 6 is 2 6 is to 4 in the
last one campaign this will be a portion
based on number of workers 4 is 2 raised
to 3 so you have to select appropriate
basis for each and every item which is
given in the service department so now
let us see the calculation so according
to this method this is the format second
a distribution summary cost column basis
of apportionment total cost and three
production departments first start with
production department cost as 30 primary
distribution as the primary distribution
which is given in the problem C as per
the primary distribution for a 60,000
for B 50 mm for C 48,000 total 1 lakh
60,000 now as the primary distribution
total 1 lakh 60,000 for a 60,000 for B
50 mm for C 48,000 you have to start
with production department cost as per
primary distribution now you have to
list out all service department cost and
enter the total amount under total
column and here you have to write the
basis of apportionment
on what basis you are going to apportion
each and every service department cost
of the production department that you
have to write in this column
stores 8,000 timekeeping an account 6000
power 3200 canteen mm now you have to
write the basis of apportionment for
each and every item separately first O's
you have to take value of stores
required that is if I a 5-4 B 3 4 C 2 5
is to 3 is to 2 5 is to 3 is to 2 tota n
so divided by 10 now just divide 8,000
based on this ratio 8,000 into 5 by 10
8,000 into 3 by 10 8,000 into 2 by 10
for timekeeping and accounts the base is
this number of workers for is to 3 is to
3/10 for power has power of machine 6 is
2 6 is 2 4 divided by 16 for canting the
same thing number of workers for is to 3
is to 3 now divide 8,000 based on the
basis of apportionment a so for
Department a 8,000 into 5 by 10 for
Department be 8,000 into 3 by 10 for
Department C 8,000 into 2 by 10
for timekeeping an account sir for
Department a6000 into 4 by 10 for
department bean 6002 3 by 10 for
Department C 6002 3 by 10 next one for
power 3200 - 6 by 16 4a and 4b 3200 into
6 by 16 for scene
3200 into 4 by 16 in the last one for
campaign Department a mm into 4 by 10
Dept big 2002 3 by 10 for Department C
2000 into 3 by 10 800 600 and 600 after
entering everything now you have to find
the total for each and every department
separately and find the total column
also for Department a total of 160 8404
B 58 thousand for C 50 2800 now get the
total ABC total amount 1 lakh 79
thousand two hundred just cross-check
the total 1 lakh 16 plus 8,000 plus
6,000 plus 3200 plus 2000 total 1 lakh
79 200 this is the way to prepare
secondary distribution as per directory
distribution method now let us see the
second method that is step method under
step method the cost of the most
serviceable departments is first
apportioned to other production
department as well as the service
departments are so therefore the first
step is we need to sequence of
apportionment must be chosen so we need
to find the sequence of apportionment
the second step is after apportioning
the first service department the next
service department is taken up thus the
service departments or a portion of one
after another
he's a second step and the third one is
the department to which apportioning has
already has been done is not charged
again hence the cost of the last service
department is apportioned to only
production department so these are the
three simple step first thing we need to
sequence of apportionment must be chosen
you have to select the sequence of a
portion maintained and second one the
most serviceable department cost is
transferred to or apportioned to other
department which includes service
departments as well as production
departments and the next step the second
sequence will be taken up okay so the
thing which already they can will not
take again okay in the same way we can
follow step by step and finally the last
service department cost will be
transferred to only production
department let us see with an example
look at the problem the manufacturing
company has two production departments x
and y and three service departments that
is timekeeping stores and maintenance ax
the departmental distribution summary
showed the following expenses for
January for the production department x
and y 60,000 and 50 mm for the service
departments for Stowe's 8,000 for
timekeeping an account 6000 maintenance
9000 other information relating to these
departments where here we have two
production departments x and y and three
service department stores timekeeping
and maintenance here some proportions
are given first one number of employees
in X Department 20 employees Y 15
employees in stores department 10
employees in timekeeping departments 8
employees in maintenance department 5
employees are there number of store
requisition for X 24 for Y 20 and for
maintenance 6 so there will be no
proportion for stores and timekeeping
and the last one machine as which is
given only for production departments
that is for X thousand five hundred for
one thousand two hundred with this
information
they ask you to apportion the cost of
service departments to production
department X&Y so here we are going to
prepare secondary distribution summary
that is we are going to allocate the
service department cause to production
department according to step method so
first step is the sequence of
apportionment must be chosen here we
have three service department stores
timekeeping and maintenance now look at
the portion mint the first one is a
number of employees so for number of
employees we have apportionment for all
the five departments so this base is
applicable to timekeeping and account
the fastest sequence is timekeeping and
accounts ok then second one number of
stores requisition ok here we have three
proportions for production department x
and y and for service department only
maintenance department has some
proportion so this is applicable to
stores so the second sequence will be
stores ok the last one mission I so
machine R is given only for production
department so this machine R is
applicable for maintenance so this will
be the the sequin according to the
information given in the problem you
need to find the sequence so the first
one timekeeping and account for that we
have divisions we have the proportion
for all the departments and second one
is stores for that we have two
production department proportion and one
service department proportion and this
will be that second sequence and the
last one is maintenance this is
applicable for only production
department this is called as step by
step method okay so now let us see the
solution so the first column for
Department so first you need to write
service departments and then production
departments are in the service
department we have selected some
sequence now according to the sequence
you have to write look at the problem
first a sequence time keeping hand
accounts how much six thousand six
thousand so in primary distribution
summary you have to write the total cost
according to the problem second
sequencer Stowe's 8,000 the third one
maintenance how much 9,000 we have
written all three service departments
now we can add production departments
also to production departments are there
no X & Y for X how much 60,000 for y
52,000 after writing the sequence of
apportionment the second step is you
need to write basis of apportionment
that's on what basis you are going to
divide this amount to various
departments is called basis of
apportionment okay the first department
is timekeeping an accountant for that
you have to take number of employees now
look at the problem number of employees
for X 24 y 15 for stores 10 for
timekeeping aid for maintenance 5 you
have to take only other department
except timekeeping because we are going
to redistribute timekeeping departments
overheads to all other departments so
you have to take the proportion
according to the sequence so just look
at the answer first one stores first O's
10 the next one is maintenance for
maintenance 5 employees fine mister next
1x department and last one y department
department X xx department Y 15 20 extra
15 now get the total 10 plus 5 plus 20
plus 15 is equal to 50 so divided by 50
this is the proportion to divide this
particular department overhead so that
is timekeeping and a constant or words
we are going to distribute to all other
men's according to the ratio and second
one stores according to the sequencer
second department is stores department F
first those departments we are going to
take number of stores requisition as
basis for that four X 24 for y 24
maintenance six number of store
requisition so this we are going to
divide to which departments maintenance
department and X department and y
department for maintenance 6 for X 24
for y 26 s stone 24 is stone 2 in G
divided by 56 plus 24 plus 20 50 / 50
according to the sequence third one is
maintenance the basis of apportionment
is mission our so this a potion is given
for only production department that is x
and y for x thousand five hundred for
1200 you can take 15 is to 12 machine
our ratio is 15 is to 12 15 plus 12 is
equal to 27 so divided by 27 so these
are the three proportions so we are
going to distribute three service
department cost to all other departments
including service and production
department based on this ratio step one
take the timekeeping Ana constable
overheads and distribute this amount to
all other departments exa the same
Department of this amount will be
distributed both service departments as
well as production department according
to the basis of proportion say the first
one is time keeping an Accounts
Department boards will be transferred to
all other departments based on this
proportion 10 is to 5 is to 20 is to 15
so for the first one
six thousand into 10 by fifty thousand
two hundred finesse Department six
thousand into 5 by fifty six hundred for
exa six thousand into 20 by fifty two
thousand four hundred for the last one
six thousand into fifteen divided by
fifty thousand eight hundred okay step
one is over this end a six thousand is
distributed to all other departments now
go to the next step now we have to
allocate stores Department total cost so
already
according to primary distribution stores
Department over it is eight thousand no
plus thousand two hundred total nine
thousand two hundred this amount we need
to redistribute to all other department
that is one service department and two
production departments according to the
basis of apportionment see the basis of
apportionment Fausto's Department six is
to twenty four is to twenty goaded by
59200 into six divided by fifty thousand
one not for four exa 9200 into
twenty-four divided by fifty four
thousand four hundred and sixteen last
one
nine thousand two hundred into 20
divided by fifty three thousand six
eighty so stores Department total
overheads redistributed to one service
department and two production
departments now go for the third one the
third one is maintenance so maintenance
total over it is ten thousand seven not
for that is nine thousand plus six
hundred plus thousand one hundred and
four rupees total ten thousand seven not
for this amount will be transferred to
two production departments because we
have only two departments all
departments are exhausted now we have
only two production departments so this
will be transferred to X&Y according to
the base
proportionate basis of apportionment for
maintenance 15 is to 12 that is 15
divided by 27 and 12 divided by 27
ten thousand seven not 4 into 15 divided
by 27
how much five thousand nine forty seven
in the last one ten thousand seven not 4
into 12 divided by 27 four thousand
seven fifty seven so the entire amount
is exhausted entire Ahmadis
redistributed to xn why see in the step
method we have selected the sequence and
then we have taken the first service
department cost and the entire amount is
redistributed to all other departments
according to the basis of apportionment
and second sequences stores department
stores department total costs are
quotient to one service department and
two production departments and the last
sequence is maintenance so maintenance
departments total overheads was
transferred to two production
departments x and y so now the entire
service department cost was distributed
to two production departments now get
the total for x and y for X 60,000 plus
two thousand four hundred plus 4416 plus
five thousand nine forty seven total
seventy two thousand seven sixty three
for y 52,000 plus thousand eight hundred
plus three thousand six eighty plus four
thousand seven fifty seven total 62,000
237 now get the total for x and y total
amount one lap 35 thousand four
cross-checking you can find the total of
primary distribution six thousand plus
eight thousand plus nine thousand plus
sixty thousand plus fifty two thousand
total one lap 35 thousand this one lakh
thirty-five thousand which includes both
service department overheads as well as
and upon overheads but the entire amount
is redistributed to only production
departments this is called as a
redistribution summary according to step
method