Which term describes the reallocation of service department costs to production departments when overheads can only be recovered through production?

Which term describes the reallocation of service department costs to production departments when overheads can only be recovered through production?

• A. Allocation
• B. Apportionment
• C. Reapportionment
• D. Absorption

Answer: (C)

When overheads from service departments must be recovered through production, the costs are shifted from the service areas to the production areas that actually use those services. In practice this follows the initial steps of allocating service department costs and then apportioning them among production departments; the remaining move is to transfer the portion charged to service departments back to production departments in line with usage. This internal redistribution is called reapportionment, because it reallocates the service costs to where they are really incurred across production lines. Absorption, by contrast, is about charging production overheads to products via a rate, not about reallocating service costs between departments. So the term describing this transfer is reapportionment.

When overheads from service departments must be recovered through production, the costs are shifted from the service areas to the production areas that actually use those services. In practice this follows the initial steps of allocating service department costs and then apportioning them among production departments; the remaining move is to transfer the portion charged to service departments back to production departments in line with usage. This internal redistribution is called reapportionment, because it reallocates the service costs to where they are really incurred across production lines. Absorption, by contrast, is about charging production overheads to products via a rate, not about reallocating service costs between departments. So the term describing this transfer is reapportionment.