allocated to department X, 4/9 are allocated to department Y and 3/9 are allocated to department Z. Similarly the proportions allocated for service department 2 have changed with 4/8 (40 per cent out of 80 per cent) of the costs of service department 2 being allocated to department X, 2/8 to department Y and 2/8 to department Z. The only justification for using the direct allocation method is its simplicity. The method is recommended when inter-service reallocations are relatively insignificant. Summary of the results using the different methods of allocation. Reallocation Method Production Production Production Total Department X Department Y Department Z R R R R Repeated distribution R 59 520 R 53 160 R 39 360 R 152 040 Simultaneous Equations R 59 520 R 53 160 R 39 360 R 152 040 Step Allocation R 59 120 R 53 440 R 39 480 R 152 040 Direct Allocation R 60 120 R 52 740 R 39 180 R 152 040 Exercise 3.24 Departments Overheads Machining R 400 000 Finishing R 200 000 Assembly R 100 000 Materials handling R 100 000 Inspection R 50 000 Estimates of benefits received by each department are as follows: Machining Finishing Assembly Materials Inspection handling 30% 25% 35% - 10% Materials handling
allocated to department X, 4/9 are allocated to department Y and 3/9 are allocated to department Z. Similarly the proportions allocated for service department 2 have changed with 4/8 (40 per cent out of 80 per cent) of the costs of service department 2 being allocated to department X, 2/8 to department Y and 2/8 to department Z. The only justification for using the direct allocation method is its simplicity. The method is recommended when inter-service reallocations are relatively insignificant. Summary of the results using the different methods of allocation. Reallocation Method Production Department X R Production Department Y R Production Department Z R Total R Repeated distribution R 59 520 R 53 160 R 39 360 R 152 040 Simultaneous Equations R 59 520 R 53 160 R 39 360 R 152 040 Step Allocation R 59 120 R 53 440 R 39 480 R 152 040 Direct Allocation R 60 120 R 52 740 R 39 180 R 152 040 Exercise 3.24 Departments Overheads Machining R 400 000 Finishing R 200 000 Assembly R 100 000 Materials handling R 100 000 Inspection R 50 000 Estimates of benefits received by each department are as follows: Machining Finishing Assembly Materials handling Inspection Materials handling 30% 25% 35% - 10%