P & M Corporation manufactures products exclusively for military clients. Due to security concerns, each product is manufactured entirely within its own department. Department X specializes in communications equipment and Department Y in armor plating. Both production departments are supported by the corporation's power-generating department (Department A) and its equipment maintenance department (Department B). The work supplied by support Department A is measured in kilowatt-hours of electricity, and that in Department B is measured in labor hours. Departments A and B also consume service from one another.
-Of the following approaches to allocating the costs of the power and equipment departments, which ignores the costs of the work that the support departments consume from one another?
A) The direct method.
B) The step-down method.
C) The reciprocal method.
D) All of the above.

Question

P & M Corporation manufactures products exclusively for military clients. Due to security concerns, each product is manufactured entirely within its own department. Department X specializes in communications equipment and Department Y in armor plating. Both production departments are supported by the corporation's power-generating department (Department A) and its equipment maintenance department (Department B). The work supplied by support Department A is measured in kilowatt-hours of electricity, and that in Department B is measured in labor hours. Departments A and B also consume service from one another. 
-Of the following approaches to allocating the costs of the power and equipment departments, which ignores the costs of the work that the support departments consume from one another?
A) The direct method.
B) The step-down method.
C) The reciprocal method.
D) All of the above.

Quizplus · Accepted Answer

The direct method ignores the costs of the work that the support departments consume from one another, allocating costs directly to the producing departments without considering interdepartmental services.

P & M Corporation Manufactures Products Exclusively for Military Clients