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Which of the following statements is true? a. The direct method of service department cost allocation takes no account of service department reciprocity. b. If there is service department reciprocity, the best method to use is a single charging rate. c. A plantwide overhead rate is used to account for service department reciprocity. d. The best method of service department cost allocation is the one that minimizes total overhead costs.
Cornerstones of Cost Management (C...
Solutions
Cornerstones of Cost Management (C...
Which of the following statements is true?
- a. The direct method of service department cost allocation takes no account of service department reciprocity.
- b. If there is service department reciprocity, the best method to use is a single charging rate.
- c. A plantwide overhead rate is used to account for service department reciprocity.
- d. The best method of service department cost allocation is the one that minimizes total overhead costs.
Identify the true statement.
Explanation of Solution
Direct method of allocation: In direct method of allocation, companies assign support department costs only to the producing departments. This method is the simpler and straightforward for assigning support department costs.
Justification for the incorrect option b:
“If there is service department reciprocity, the best method to use is a single charging rate” is a false statement.
Justification for the incorrect option c:
“A plant wide overhead rate is used to account for service department reciprocity” is a false statement.
Justification for the incorrect option d:
“The best method of service department cost allocation is the one that minimizes total overhead Costs” is a false statement...
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