Overhead apportionment -service depts


Scenario is 5 depts Processing, Packing, QA, Stores and Maint.

Costs are, rent & rates, supervis salaries, deprn machs, canteen costs.

basis :- floor area, employees, machine usage, material reqs, maint hours.

I've done the allocation okay.

The second part of the question is :

'Outline what now needs to be done with the budgeted costs of the service depts in order to arrive at overhead absorbtion rates for the prod. depts. Explain the reasons for this action.'

My thoughts are

Stores provides services to all the depts, so it is done first. Maint only to prod depts.

My problem is QA dept, it is a service dept but what basis should it be re-apportioned? (just had a thought) as it's qa it would only provide service to the production depts, wouldn't it? but on what basis?

So in that case as long as you re-apportion service first it doesn't matter whether you do QA or Maint next?

I can explain that this is the step down method (fair and proportionate way etc) and that service is done first as it provides service to other depts.

Has anyone an eloquent way of explanation of re-apportionment?

Ta in advance!


  • SandyHood
    SandyHood Registered, Moderator Posts: 2,034
    I doubt I'd be eloquant
    All your ideas are fine. Re-apportioning QA dept costs would best based in proportion to how much work/benefit each of the production departments derive from QA.
    For example, does QA do 80% of its work for processing and 20% for packing?
    [email protected]
  • reddwarf
    reddwarf Registered Posts: 528
    Thanks Sandy, would you agree that an 'reasonable' method used would be okay since QA could apply to the other service depts in monitoring their quality of of service to the production depts?
  • SandyHood
    SandyHood Registered, Moderator Posts: 2,034
    I agree
    Hopefully there will be sufficient detail in the question to know which depts benefit.
    [email protected]
Privacy Policy