Question

1. Which of the following statements is false regarding the six-step process as it is utilized in the reciprocal services method?

   a. Steps 1–3 of the reciprocal services method are the same as for the direct and sequential methods.

   b. In Step 5, support department costs are allocated sequentially among the departments by using a single algebraic equation.

   c. In Step 4, the proportional usage of each support department's cost driver by the other departments to which its costs are to be allocated is determined.

   d. In Step 6, production department costs are applied to products.

Answer 1

The option given that is -

a. Step 1-3 of reciprocal services method are the same as for direct and sequential method is false statement.

The method followed in direct and sequential method does not at h with reciprocal services method.

In reciprocal services method following steps are involved -

1. The proportional usage of each support departments cost driver by the other departments to which cost are allocated is determined.

2. Support departments costs are allocated sequentially among the departments by using a single algebraic equation.

3. Production department costs are applied to products.

In reciprocal services method, service cost are allocated to production departments such a way that services cost become zero and are allocated in proper proportion thus it involves the above three steps.

Thus the statement a is false.