When would the direct method and the step-down method of service department cost allocation result in identical allocations being made to the operating departments?
A) when there is only one service department
B) when all of the costs in the service departments are fixed costs
C) when there is an equal amount of service departments and operating departments
D) both A and B above

Question

Quizplus · Accepted Answer

The direct method of service department cost allocation assigns the entire cost of each service department directly to the operating department that uses it, without any apportionment to other service departments. In contrast, the step-down method first allocates the costs of service departments that provide services to other service departments, and then allocates the remaining costs of each service department to the operating departments based on a predetermined sequence. Thus, when there is only one service department, the allocations will be identical under both methods because there are no other service departments to allocate costs to or from.

When Would the Direct Method and the Step-Down Method of Service