(Appendix)Using the direct method for service department's cost allocations are likely to undercost low-volume products.

Question

Quizplus · Accepted Answer

The direct method does not consider the extent of service department usage by different production departments, and simply allocates service department costs based on a predetermined allocation base, such as the number of employees or square footage. This can result in undercosting of low-volume products that may not use service departments as much as high-volume products.

(Appendix)Using the Direct Method for Service Department's Cost Allocations Are