While

allocating service departments overheads, one can observe two circumstances:

(1)

The whole amount of a servicing department is to be allocated to only the manufacturing departments. This does not integrate any practical complexity and offers the simplest and swiftest method for allocating costs of the servicing department Continue Reading

(2) Services offered by some servicing departments are used partially by other servicing departments. Many servicing departments supply each other. For instance, the payroll department for repair and maintenance services, likewise, the building maintenance department offers services for all departments using the building, however it gets service from stores, factory office and personnel departments. This second circumstance is known as Inter Departmental Services. Continue Reading

There are chiefly two schemes of dealing with inter departmental service: A. Continuous Allocation

In this scheme, the procedure of allocating overheads of servicing departments is continued until the values become irrelevant or completely exhausted. The below given steps are involved in this scheme: Continue Reading

(a) The mentioned percentages should be used to allocate the original aggregate of the first service department. This closes the account of the first service department and transfers prorated values to other departments Continue Reading

(b) The mentioned percentages of second service department whose aggregate is made up of original amount plus prorated value of service department first. This closes the account of second service department and allocates prorated values to the other departments counting service department first also. (c) The same procedure is followed for all other departments. Continue Reading

(d) The second cycle of allocation is repeated with the service department first, whos aggregate consists at present only of value prorated from other servicing departments. In this method, the servicing department aggregate become lower and lower with every cycle of allocation since every time a considerable value is allocated to the manufacturing department. Continue Reading

(e) The above cycle is stopped at any point where it is originated that the balance amount are too little to be of any outcome or when the amount are completely exhausted. Continue Reading

 Algebraic

Scheme This scheme helps in

uncovering the amount of overhead of every servicing department by cracking concurrent equations. The aggregate expenses of service department can be in a straight line transferred to production department.
Illustration:

The overhead of a production company has been examined to the point of primary Continue Reading

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