(Appendix 4B)Grant Company has several service departments that provide services to each other as well as to operating departments within the company.Which method would be least accurate in allocating the company's service department costs?
A) The sequential method.
B) The direct method.
C) The step-down method.
D) The reciprocal method.

Question

Quizplus · Accepted Answer

The direct method is the least accurate in allocating the company's service department costs as it only allocates service department costs directly to the operating departments without considering the interrelationships among the service departments themselves. This method ignores the fact that service departments also consume services from other service departments, leading to distorted cost allocation. The sequential method, step-down method, and reciprocal method all take into account the interrelationships among service departments, making them more accurate methods of cost allocation.

(Appendix 4B)Grant Company Has Several Service Departments That Provide Services