Consider the following statements about the direct method of service department cost allocation:
I. Under the direct method, all service department costs are eventually allocated to production departments.
II. The order in which service department costs are allocated to production departments is important.
III. Once a service department's costs have been allocated, no costs are re-circulated back to that department.
Which of the above statements is (are) correct?
A) I only.
B) II only.
C) I and II.
D) I and III.
E) I, II, and III.

Question

Quizplus · Accepted Answer

The direct method of service department cost allocation involves allocating all service department costs directly to production departments without considering services provided between service departments (I is correct). The order of allocation is not important in the direct method, making statement II incorrect. Once costs are allocated from a service department, they are not allocated back to that department, making statement III correct.

Consider the Following Statements About the Direct Method of Service