The Montrose Clinic has two service departments (Human Resources and Information Resources) and two "production" departments (In-patient Treatment and Out-patient Treatment). The service departments service the "production" departments as well as each other, and studies have shown that Information Resources provides the greater amount of service. Which of the following allocations would occur if Montrose uses the direct method of cost allocation?

Question

Quizplus · Accepted Answer

The direct method of cost allocation only allocates service department costs to the production departments they directly service. In this case, since Information Resources provides the greater amount of service, its cost would be allocated to In-patient Treatment, one of the production departments it services. Therefore, choice A is the correct choice.

The Montrose Clinic Has Two Service Departments (Human Resources and Information