Which of the following methods of allocating service department costs to user departments is superior?
A) The step down method is superior because it is easy to understand.
B) The direct method is superior because it recognizes the support provided between service departments.
C) The direct and step down methods allocate the same amount of total costs so both methods are comparable.
D) The step down method is superior because it recognizes the support provided between service departments.

Question

Quizplus · Accepted Answer

The step down method is superior because it recognizes the support provided between service departments. The direct method does not consider the support provided between service departments, which can lead to inaccurate cost allocations to user departments. The total costs allocated by both methods may be comparable, but accuracy is more important than total cost allocation. Therefore, the step down method is a better choice.

Which of the Following Methods of Allocating Service Department Costs