Service department costs and continuous allotment

Reapportioning service costs

After allocation and apportionment, each service department's total is reapportioned to the departments it serves, using a basis such as maintenance hours, stores requisitions or number of employees, usually given as percentages.

• If the service departments do not serve each other, share each one directly to the production departments (the direct method).
• If they do serve each other (reciprocal services), use continuous allotment (the repeated distribution method): reapportion the first service department, including the share to the other service department, then reapportion the second, including its share back to the first, and keep going until the amounts left are negligible.

The June 2024 examiners' report found reapportionment and continuous allotment were handled well; practise the layout.

Continuous allotment layout

Maintenance serves Machining (P1) 50%, Assembly (P2) 30%, Stores 20%. Stores serves Machining 40%, Assembly 50%, Maintenance 10%.

Algebraic check

Let M and S be the total costs of Maintenance and Stores including what they receive from each other:

• M = 20,000 + 0.1S
• S = 12,000 + 0.2M

Substituting: M = 20,000 + 0.1(12,000 + 0.2M), so 0.98M = 21,200 and M = 21,632.65; S = 16,326.53.

Machining = 60,000 + 0.5M + 0.4S = 77,346.94; Assembly = 45,000 + 0.3M + 0.5S = 59,653.06. The totals match continuous allotment, and the production departments together carry all £137,000 of overheads.

Worked example

In round 1 of the table, how much of Stores' cost is reapportioned, and why is it more than £12,000?

1. Stores starts with £12,000.
2. It receives 20% of Maintenance's £20,000 = £4,000 in round 1.
3. So £16,000 is reapportioned: 40% (6,400) to Machining, 50% (8,000) to Assembly, 10% (1,600) back to Maintenance.

Answer: £16,000, because Stores has received a share of Maintenance's costs.

Check yourself

1. A canteen's overheads of £18,000 are reapportioned on number of employees: Cutting 45, Sewing 75. The canteen serves no other service department. How much goes to Sewing?
   Show answer

   £11250. 18,000 x 75/120 = 11,250.

2. Maintenance has overheads of £30,000 and serves P1 40%, P2 40% and Stores 20%. How much is added to Stores in the first round of continuous allotment?
   Show answer

   £6000. 20% x 30,000 = 6,000.

3. Service department X (£10,000) gives 10% of its services to service department Y; Y (£5,000) gives 20% of its services to X. Using X = 10,000 + 0.2Y and Y = 5,000 + 0.1X, find the total cost of X to the nearest pound.
   Show answer

   £11224. X = 10,000 + 0.2(5,000 + 0.1X) = 11,000 + 0.02X, so X = 11,000/0.98 = 11,224.

4. After continuous allotment, two production departments carry all the overheads. Before reapportionment the production departments had £84,000 and £61,000, and the service departments £15,000 and £9,000. What is the total for the two production departments afterwards?
   Show answer

   £169000. All overheads end up in production: 169,000.

5. Why must service department overheads be reapportioned to production departments?
   • Service departments make a profit
   • Service departments have no overheads
   • To reduce total overheads
   • Overheads are absorbed into products only through production departments
   Show answer

   Overheads are absorbed into products only through production departments. Only production departments work on the products, so all costs must reach them to be included in product costs.

6. When is continuous allotment needed instead of the direct method?
   • When there is only one production department
   • When service departments provide services to each other
   • When overheads are all fixed
   • When labour hours are used for absorption
   Show answer

   When service departments provide services to each other. Reciprocal services create a loop that continuous allotment works through.

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Sources

• Pearson Edexcel International Advanced Subsidiary/Advanced Level in Accounting specification (issue 2), Unit 1 and Appendices 6 to 8

Last updated 8 November 2026. Spotted a mistake? Tell us.