Allotment of Non Reciprocal Services

Share Accounting Article below:

What is Allotment of Non-Reciprocal Service Method?

Definition and Procedure:

A type of cost allocation method (allotment of non-reciprocal service method) in which the usual procedure is to close out costs of the service departments in accordance to the level of services rendered by them. In other words, the costs of the service departments rendering the services to the greatest number of other service departments are first allotted to other production and service departments.

Then the cost of (including cost transferred from first service department) next best service department is then allotted to other departments and this process continues till the costs of all service departments are apportioned. So once the cost of a service department is allotted, it is out of next distribution. At the end, the cost of last service department is apportioned only to the production departments.

Note that under allotment of non-reciprocal service method, the costs of subsequent service departments will not be allocated to the preceding service departments; thus any reciprocal service among departments are ignored. As a result, the true costs of production cost centers may not be calculated.

Solved Example by (Continuous Allotment Method):

XYZ Engineering Co is organized into five departments. Departments A, B and C are production departments, and X and Y are service departments.

X department’s overheads are split amongst all the other departments whereas Y department’s overheads are split amongst the three production departments on the basis given in the following table:

allotment-of-non-reciprocal-services-example-data

Details are shown below for the following year ending ending 30 September 2016.

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Required:

Use the continuous allotment method to apportion X’s and Y’s overheads to other departments.

Solution:

FOH Allotment Sheet (Non-Reciprocal Services) by Continuous Method

allotment-of-non-reciprocal-services-example-solution