How to calculate secondary distribution

Secondary distribution, also known as service department cost allocation, is the process of reallocating overhead costs from service departments (e.g., maintenance, HR, IT) to production departments. This is done to ensure that all indirect costs are ultimately assigned to the products or services being manufactured. Calculation involves selecting an appropriate allocation basis (e.g., number of employees, machine hours, floor area) and applying a chosen method, such as the direct method, step-down method, or reciprocal method, to distribute these costs.