If an overhead is allocated to a service cost centre, it is re-apportioned to other centres. True or false?

If an overhead is allocated to a service cost centre, it is re-apportioned to other centres. True or false?

• A. True
• B. False
• C. Sometimes
• D. Not defined

Answer: (A)

When assigning overheads, service cost centres incur costs that are not directly tied to producing a product. To reflect who actually uses those services, their costs are redistributed to the departments that rely on them. This is usually done in two stages: first allocate to service centres and then re-apportion those costs to the production cost centres (and sometimes to other service centres) that consume the services. Because of this re-apportionment step, an overhead allocated to a service cost centre is indeed redistributed to the other centres that use it.

When assigning overheads, service cost centres incur costs that are not directly tied to producing a product. To reflect who actually uses those services, their costs are redistributed to the departments that rely on them. This is usually done in two stages: first allocate to service centres and then re-apportion those costs to the production cost centres (and sometimes to other service centres) that consume the services. Because of this re-apportionment step, an overhead allocated to a service cost centre is indeed redistributed to the other centres that use it.