Syed Yashfeen Haider

17U00431

Sec G

Overhead includes all those items that are not directly assigned to a product. So it is allocated among departments on some
reasonable basis. After such distribution, total overhead of each department are known. But all departments are not producing
center. Some department renders service. So they cannot produce anything. There costs are redistributed on production
departments only.

In this problem, there are five centers including three production center and two service center. Production centers are Mixing,
blending, finishing, Factory office and Building maintenance. Here overheads of building maintenance and factory office should
be apportioned on three production centers. Building maintenance overhead will be distributed on the basis of floor space.
Factory office cost allocation will be on the basis of employees.

Different apportionment techniques are available. One such method is direct distribution. Here service department rendering
service to another service department will be ignored. So allocation will be made directly to three production departments. It is
shown below-

Statement showing distribution

under direct method

Basis Ratio Total Mixing Blending Finishing Factory Building

office maintenance

Overhead
expenses $79,400 $21,000 $18,000 $25,000 $9,000 $6,400

Distribution of
building
mainternance Floor 100:45:105 $0 $2,560 $1,152 $2,688 ($6,400)

space

Distribution of
Factory office Employee 30:20:50 $0 $2,700 $1,800 $4,500 ($9,000)

numbers

Overhead
expenses after
distribution $79,400 $26,260 $20,952 $32,188 $0 $0

In sequential distribution method, service department rendering service to other service centers are also considered. Here building
maintenance has also provided service to factory office. So a part of the overhead of building maintenance is apportioned to
Factory office. Then factory office overhead will be allocated to production centers. it is shown below-

Statement showing distribution under

sequential distrbution method
 Basis Ratio Total Mixing Belnding Finishing Factory Building

office maintenance

Overhead $79,40 $21,00

expenses 0 0 $18,000 $25,000 $9,000 $6,400

Distribution of
building
mainternance Floor 100:45:105:70 $0 $2,000 $900 $2,100 $1,400 ($6,400)

$23,00
Total space 0 $18,900 $27,100 $10,400 $0

Distribution of Employe ($10,400

Factory office e 30:20:50 $0 $3,120 $2,080 $5,200 )

numbers

Overhead
expenses after $79,40 $26,12
distribution 0 0 $20,980 $32,300 $0 $0