Question

1. Which of the following statements is true about the sequential method of allocating support department costs to production departments?

   a. The sequential method captures some but not all the inter-support-department services by allocating support departments to other support departments and production departments in a series of steps.

   b. The sequential method is less accurate than the direct method.

   c. The sequential method is also known as the step-up method.

   d. The sequential method requires that the same cost driver be used for each support department.

Answer 1

The answer is "A" : The sequential method captures some but not all the inter-support-department services by allocating support departments to other support departments and production departments in a series of steps.

Reason :

1. Sequential method is more accurate than the direct method hence "B" is not true.

2. Sequential method is also known as step-down method so "C" is also not true.

3. Sequential method does not require the same cost driver to be used for each support department. Different cost drivers can be used for each support department and hence even "D" is not true.

"A' matches with the definition of a sequential method of allocating costs which is as follows : The sequential method realizes that interactions or transactions do occur between the support departments also. Hence the cost allocation is performed on a step-down basis wherein the costs of support department providing the greatest service is allocated first. Hence it is generally more accurate than the direct method since even the interactions among the support departments is taken into consideration.