Grant Company has several service departments that provide services to each other as well as to operating departments within the company.Which method would be least accurate in allocating the company's service department costs?
A) The sequential method.
B) The direct method.
C) The step-down method.
D) The reciprocal method.

Question

Quizplus · Accepted Answer

The direct method is the least accurate method for allocating service department costs because it allocates all service costs directly to the operating department without considering the services provided by other service departments. This can lead to inaccurate allocations and cross-subsidization. The best choice is either the step-down or reciprocal method, which take into account the services provided by other service departments and result in more accurate cost allocations.

Grant Company Has Several Service Departments That Provide Services to Each