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A company uses the repeated distribution method to reapportion service department costs. The use of this method suggests: A the company’s overhead rates are based on estimates of cost and activity levels, rather than actual amounts B there are more service departments than production cost centres C the company wishes to avoid under or over absorption of overheads in its production cost centres D the service departments carry out work for each other.

Question

A company uses the repeated distribution method to reapportion service department costs. The use of this method suggests: A the company’s overhead rates are based on estimates of cost and activity levels, rather than actual amounts B there are more service departments than production cost centres C the company wishes to avoid under or over absorption of overheads in its production cost centres D the service departments carry out work for each other.

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Solution

The repeated distribution method for reapportioning service department costs suggests that the company wishes to avoid under or over absorption of overheads in its production cost centres. This is because the method involves repeatedly distributing the costs of each service department to all other departments (including other service departments) until all service department costs have been fully allocated. This method is more accurate and comprehensive as it considers the mutual services provided among service departments. Therefore, the correct answer is C.

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