Intermediate: Reapportionment of service department costs and a discussion of the treatment of the under/over recovery of overheads A company reapportions the costs incurred by two service cost centres, materials handling and inspection, to the three production cost centres of machining, finishing and assembly.

The following are the overhead costs which have been allocated and apportioned to the five cost centres

Estimates of the benefits received by each cost centre are as follows:

You are required to:

(a) calculate the charge for overhead to each of the three production cost centres, including the amounts reapportioned from the two service centres, using (i) the continuous allotment (or repeated distribution)
method and (ii) an algebraic method:

(b) comment on whether reapportioning service cost centre costs is generally worthwhile and suggest an alternative treatment for such costs;

(c) discuss the following statement ·some writers advocate that an under or over absorption of overhead should be apportioned between the cost of goods sold in the period to which it relates and to closing stocks.
However, the United Kingdom practice is to treat under or over absorption of overhead as a period cost

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(000) Machining 400 Finishing 200 Assembly 100 Materials handling 100 Inspection 50