Trackings Corporation has two service departments (Maintenance and Human Resources) and three production departments (Machining, Assembly, and Finishing). Maintenance is the larger service department and Assembly is the largest production department. The two service departments service each other as well as the three producing departments. On the basis of this information, which of the following cost allocations would not occur under the direct method?
A) Machining cost would be allocated to Assembly.
B) Maintenance cost would be allocated to Finishing.
C) Maintenance cost would be allocated to Human Resources.
D) Human Resources cost would be allocated to Finishing.
E) Both machining cost would be allocated to Assembly and maintenance cost would be allocated to Human Resources.

Question

Quizplus · Accepted Answer

Under the direct method, only direct costs are allocated to each producing department. Therefore, the indirect costs of one service department cannot be allocated to another service department or another producing department. Choice E includes allocations of indirect costs from Maintenance to Human Resources and from Machining to Assembly, which would not occur under the direct method.

Trackings Corporation Has Two Service Departments (Maintenance and Human Resources)