The Scarsdale Clinic has two service departments (S1 and S2) and two "production" departments (P1 and P2). The service departments service the "production" departments as well as each other, and studies have shown that S2 provides the greatest amount of service. Which of the following choices correctly denotes an allocation that would occur under the step-down method of cost allocation?
A)S1's cost would be allocated to P1.
B)P1's cost would be allocated to P2.
C)S2's cost would be allocated to S1.
D)P1's cost would be allocated to S1.
E)P2's cost would be allocated to P1.

Question

Quizplus · Accepted Answer

In the step-down method, the service department that provides the most service is allocated first. Therefore, S2's cost would be allocated to S1 and the production departments.

The Scarsdale Clinic Has Two Service Departments (S1 and S2)