Question

When the __________ method is used to apply overhead to products, overhead costs are first directly traced or distributed to support and manufacturing departments.

1. activity-based costing
2. single plantwide rate
3. multiple production department rates
4. None of the above

In the context of activity-based costing, transferring overhead costs to support and production departments is referred to as __________ overhead costs.

1. assigning
2. allocating
3. applying
4. distributing

In the context of allocating support department costs to production departments, which of the following methods is the most difficult but the most accurate?

1. Reciprocal services method
2. Step-down method
3. Direct method
4. Sequential method

In the context of allocating support department costs to production departments, the __________ considers all inter-support-department services and is the most difficult to implement when a large number of departments is involved.

1. Sequential method
2. Direct method
3. Reciprocal services method
4. Step-down method

Answer 1

1) Activity Based costing:- It is a costing method that assigns overhead and indirect cost to related products and services.This method recognise the relationship between cost, overhead activities and manufactured products.

2) B

3) A) Reciprocal service method is used to recognise interdepartmental services and provides greater exactness in allocating the cost of a service department to other departments. This method is rarely used ,it results in an accurate distribution of costs.

4) C :- Direct method completely ignores the interdepartmental services and step down method gives them only a partial recognition because it allocates costs forward never backward. That's why the answer is Reciprocal services method.