Memorex Clinic has two service departments (Laboratory and Human Resources) and three production departments (In-patient Treatment, Neurology, and After-Care). The two service departments service each other, and studies have shown that Laboratory provides the greatest amount of service. Given the various cost allocation methods, which of the following choices correctly denotes whether Laboratory cost would be allocated to Human Resources?
A)Direct, Step-down, and Reciprocal.
B)Direct.
C)Direct, and Reciprocal.
D)Step-down.
E)Step-down and Reciprocal.

Question

Quizplus · Accepted Answer

The Laboratory department provides the greatest amount of service, indicating that a step-down allocation method would be appropriate. Additionally, since both service departments service each other, a reciprocal allocation method would also be needed. Therefore, the correct choices are Step-down and Reciprocal, making option E the best choice.

Memorex Clinic Has Two Service Departments (Laboratory and Human Resources)