The step-down method of allocation improves the direct method by:
A) Considering the reciprocity in consumption partially.
B) Simplifying the allocation approach.
C) Allocating more of the total cost of the service activity.
D) Using a statistical approach to allocation.
E) None of the above.

Question

The step-down method of allocation improves the direct method by: 
A) Considering the reciprocity in consumption partially.
B) Simplifying the allocation approach.
C) Allocating more of the total cost of the service activity.
D) Using a statistical approach to allocation.
E) None of the above.

Quizplus · Accepted Answer

The step-down method considers the reciprocity in consumption by allocating costs to service departments first, and then to production departments. This partially accounts for the fact that service departments consume resources from each other. Therefore, Option A is the best choice. Option B is incorrect because although the step-down method may be more complicated than the direct method, it is not necessarily less simplified. Option C is incorrect because the step-down method does not necessarily allocate more of the total cost of the service activity. Option D is incorrect because the step-down method is not a statistical approach to allocation. Option E is incorrect because there is a difference between the direct method and the step-down method, and the step-down method does improve upon the direct method.

The Step-Down Method of Allocation Improves the Direct Method By