Answered: Explain briefly the main differences…

Explain briefly the main differences between the direct, step-down, and reciprocal-services methods of service department cost allocation.

Principles of Cost Accounting

17th Edition

ISBN:9781305087408

Author:Edward J. Vanderbeck, Maria R. Mitchell

Publisher:Edward J. Vanderbeck, Maria R. Mitchell

Chapter4: Accounting For Factory Overhead

Section: Chapter Questions

Problem 17Q: When using the sequential distribution method of distributing service department costs, if each of...

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Concept explainers

Overheads

In cost accounting, overhead refers to those expenses which occur during the operating of a business. Overhead includes the fixed, variable, or semi-variable which is not directly involved with a company product or service. It is very important to analyze overhead expense as it helps the company in determining how much a company must charge for its products and services so that they can generate profit. Overhead expenses depend upon the nature of the business operations.

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Explain briefly the main differences between the direct, step-down, and reciprocal-services methods of service department cost allocation.

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Similar questions

When using the sequential distribution method of distributing service department costs, if each of two service departments services the same number of other departments, how is it determined as to which service department to allocate first?
Why is the diect method of support department cost allocation less accurate than the sequential and reciproval services methods?
When allocating service department costs to production departments, why is the standard cost that the service department was expected to incur, rather than the actual cost that was incurred, used in the allocation?
How does management determine the order in which support department costs are allocated under the sequential method?
Which of the following methods recognizes some (but not all) of the services that occur between service departments? Indirect method. Step-down method. Reciprocal-services method. Dual-cost allocation method. Direct method.
Compare and explain differences in the support-department costs allocated to eachproduction department.
Which of the following principles should be applied when the step method of allocating service department costs is used? The sequence of allocation among departments should be randomly selected. The sequence of allocation among departments should proceed from the largest department as measured by total assets to the smallest. The sequence of allocation among departments should proceed from the largest provider of interdepartmental services to the smallest. All possible sequences of service department allocations should be computed. The sequence that provides the largest allocation of service costs should then be selected.
Compare and explain differences in the support-department costs allocated to each operating department.
support department cost allocation- reciprocal services method
Which service department cost allocation method provides for reciprocal allocation of service costs among the service department as well as to the revenue producing departments? a. Method of Algebra b. Step method c. Indirect method d. direct method e. None of the above
Give examples of allocation bases used to allocate support-department cost pools to operating departments.
Which method of allocating support department costs is completed by taking the service flows to production departments only and determining each production department's share of that service? Question options: a) average method. b) step method. c) direct method. d) reciprocal method.