Service department costs are re-apportioned between production departments because overheads can only be recovered by being included as part of the cost of production.

• A. False
• B. True
• C. Only when there are zero service costs
• D. Only in external reporting

Answer: (B)

Overheads that come from service departments are not tied directly to a specific product, so they’re not charged straight to a product. To recover these costs, they’re allocated to the production departments that actually use the services. Once the service costs are allocated to production departments, they become part of the cost of producing goods, and are ultimately included in inventory and cost of goods sold. Re-apportionment ensures that every production department bears a fair share of the service costs based on usage (such as hours, space, or headcount), so the total cost of production includes all overheads. This is an internal costing mechanism for accurate product costing and pricing, not something that applies only in external reporting.