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This image presents an accounting exercise involving the allocation of overhead costs using the direct method for secondary distribution in a company with five departments (A, B, C, D, and E). The exercise shows various overhead expenses like Rent, Rates & Taxes, Depreciation, etc., along with specific information for allocation based on the area, employees, and other factors.

### Key Information:
1. **Production Departments**: A, B, and C.
2. **Service Departments**: D and E.
3. **Overhead Expenses**: Include Rent, Rates & Taxes, Depreciation of Building, Lighting, Power, etc.
4. **Further Information**: This data provides details on each department, such as area (Sq Ft), number of employees, value of material consumed, etc., for proper cost allocation.
5. **Ratio of Services Rendered**: Dept. D provides services to A, B, and C in the ratio of 5:3:2, and Dept. E’s services are absorbed by Dept. D.

### Goal of the Exercise:
Prepare a **secondary distribution** using the **direct method**, where the costs of the service departments (D and E) are distributed to the production departments (A, B, C) based on given ratios.

Would you like me to walk you through the steps of this allocation process or explain any specific part? 

### Follow-up Questions:
1. How are the overheads (like Rent, Power, etc.) initially allocated to departments?
2. What is the direct method for distributing service department costs?
3. How do we use the provided ratio (5:3:2) for distributing Dept. D's costs?
4. How does Dept. E's allocation to Dept. D affect the secondary distribution?
5. Can you explain the significance of areas and employees in overhead allocation?

#### Tip:
In overhead distribution, always start by allocating general overheads based on department-specific information (area, employees), and then proceed with service department cost distribution using the given ratios.

This image presents an accounting exercise involving the allocation of overhead costs using the direct method for secondary distribution in a company with five departments (A, B, C, D, and E). The task is to allocate overhead costs based on given ratios and departmental factors.

Learn how to allocate overhead costs using the direct method in a cost accounting scenario with five departments. This exercise involves distributing service department costs to production departments in the ratio of 5:3:2, focusing on overheads like Rent, Power, and more.

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