The most widely used methods of support department cost allocations are the:
A) direct method and cost application.
B) cost distribution and step-down method.
C) direct method and step-down method.
D) step-down method and cost application.

Question

Quizplus · Accepted Answer

The direct method only allocates support department costs directly to production departments lacking reliability for providing exact costs for support departments. Cost distribution only distributes support department costs through all production departments to recognize their contributions, giving every support department an equal treatment. However, it does not contemplate the variations in service levels in each department. The step-down method considers the fact that some support departments provide services to other support departments, allowing for a more accurate allocation of costs. Therefore, the direct method and step-down method are the two most used approaches for support department cost allocations.

The Most Widely Used Methods of Support Department Cost Allocations