The whole amount of a servicing department is to be allocated to only the manufacturing departments. This does not integrate any practical complexity and offers the simplest and swiftest method for allocating costs of the servicing department.

1. While
allocating service departments overheads, one
can observe two circumstances:
(1)
The whole amount of a servicing department is to
be allocated to only the manufacturing departments.
 This does not integrate any practical complexity and
offers the simplest and swiftest method for allocating
costs of the servicing department
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2. 


(2) Services offered by some servicing departments are
used partially by other servicing departments. Many
servicing departments supply each other.
For instance, the payroll department for repair and
maintenance services, likewise, the building maintenance
department offers services for all departments using the
building, however it gets service from stores, factory
office and personnel departments.
This second circumstance is known as Inter
Departmental Services.
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3. 
There are chiefly two schemes of dealing with inter
departmental service:

A. Continuous Allocation –

In this scheme, the procedure of allocating overheads of
servicing departments is continued until the values
become irrelevant or completely
exhausted. The below given steps are involved in this
scheme:
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4. 

(a) The mentioned percentages should be used to
allocate the original aggregate of the first service
department.
This closes the account of the first service department
and transfers prorated values to other departments
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5. 


(b) The mentioned percentages of second service
department whose aggregate is made up of original
amount plus prorated value of service department first.
This closes the account of second service department
and allocates prorated values to the other departments
counting service department first also.
(c) The same procedure is followed for all other
departments.
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6. 

(d) The second cycle of allocation is repeated with the
service department first, who’s aggregate consists at
present only of value prorated from other servicing
departments.
In this method, the servicing department aggregate
become lower and lower with every cycle of allocation
since every time a considerable value is allocated to the
manufacturing department.
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7. 
(e) The above cycle is stopped at any point where it is
originated that the balance amount are too little to be of
any outcome or when the amount are completely
exhausted.
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8.  Algebraic
Scheme – This scheme helps in
uncovering the amount of overhead of every servicing
department by cracking concurrent equations. The
aggregate expenses of service department can be in a
straight line transferred to production department.
 Illustration:
The overhead of a production company has been
examined to the point of primary
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14. 
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