Distinguish between primary distribution and secondary distribution of overheads. Name the methods of secondary distribution.

Question

Accepted Answer

Departmentalization of overhead is carried out in two successive stages.

**Primary distribution** is the first stage. Every item of overhead is allocated (charged whole to one department) or apportioned (split on a suitable basis) across **all** departments — both production departments and service departments — and each department column is totalled. At the end of primary distribution, overhead is sitting in *both* kinds of department.

**Secondary distribution** is the second stage. Service departments (stores, maintenance, power house, canteen) do not make the product; they only serve the production departments. So their overhead totals are **reapportioned** to the production departments on the basis of the service each production department received. At the end of secondary distribution, the service departments show nil and the *entire* factory overhead rests in the **production departments only** — ready for absorption into products.

| Point of difference | Primary distribution | Secondary distribution |
|---|---|---|
| Departments involved | All departments (production + service) | Service departments → production departments |
| Purpose | Charge every overhead to some department | Transfer service-department cost to production departments |
| Result | Overhead sits in production and service departments | Overhead rests in production departments only |
| Technique used | Allocation and apportionment | Reapportionment |

**Methods of secondary distribution:**
1. **Direct redistribution method** — each service department's cost is reapportioned only to the production departments, ignoring service given to other service departments. Simplest; used when inter-service work is small. …

Overhead	Common apportionment base
Rent, rates	Floor area
Depreciation	Value of asset
Power	Horse-power / kWh
Supervision, canteen, ESI	Number of employees

Q.Distinguish between primary distribution and secondary distribution of overheads. Name the methods of secondary distribution.

Concept understanding — Primary and Secondary Distribution

Point of difference	Primary distribution	Secondary distribution
Departments involved	All departments (production + service)	Service departments → production departments
Purpose	Charge every overhead to some department	Transfer service-department cost to production departments
Result	Overhead sits in production and service departments	Overhead rests in production departments only
Technique used	Allocation and apportionment	Reapportionment

Q.Distinguish between primary distribution and secondary distribution of overheads. Name the methods of secondary distribution.

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