In repeated distribution, which service cost centre is processed first?

• A. The service cost centre with the smallest allocated overheads
• B. The service cost centre with the largest allocated overheads
• C. The production cost centre with the largest overhead
• D. The factory management centre

Answer: (B)

In repeated distribution, the costs of service cost centres are allocated to other centres in steps, because service departments often provide services to one another as well as to production departments. You begin by selecting a service cost centre and distributing its overheads to the recipients (other service centres and production cost centres), then you update the remaining service centre costs and repeat until all service costs are allocated.

Start with the service cost centre that has the largest allocated overheads. This centre has by far the biggest impact on the total costs being allocated, so distributing its costs first leads to the largest adjustments early on and makes the subsequent reallocations smaller and quicker to settle. It helps the iterative process converge efficiently and reduces the amount of rework as you proceed.

Choosing a service centre with a smaller overhead or focusing on a production cost centre would not reflect the way mutual service costs are handled in this method, and would make the distribution less efficient or accurate.