Consider the following statements about service department costs:
I. The costs of the Human Resources Department in a manufacturing organization must be allocated to production departments in order to achieve a correct costing of inventory.
II. The allocation of service department costs requires that an organization select both an allocation base and an allocation method.
III. Service department cost allocations are more relevant for firms involved in service industries (e.g., repair, health care) than for those involved with manufacturing.
Which of the above statements is (are) correct?
A) I only.
B) II only.
C) I and II.
D) II and III.
E) I, II, and III.

Question

Quizplus · Accepted Answer

I and II are correct. The costs of service departments like Human Resources must be allocated to production departments for accurate inventory costing. Also, allocating these costs requires choosing both an allocation base and method. Statement III is incorrect because service department cost allocations are relevant for both service industries and manufacturing, not more so for service industries.

Consider the Following Statements About Service Department Costs