Question

State another method (other than repeated distribution) that could be used for the reapportionment of service department costs over production departments.

Answer 1

Mainly there are 2 other methods of allocating service department cost to production department.They are:

i)Direct Method:

This is the simplest method of allocating service department costs. This method allocates the service department costs directly to the production departments. It doesnot allocate any service department costs to another service departments.This is true even when one service department performs a service of another service department,this method bypasses such considerations and assigns all costs directly to the production departments.

ii)Step Down Method:

This method allocates a service department's costs to service departments and production departments. Once the service deprtment is choosen to allocate its cost to other departments,then the service department whose cost has been allocated is dropped from the process and the next service department repeats the same process by alocating its Direct cost +the cost it has been allocated by the previous service department.The most popular approach is to start with the service department that provides the highest proportion of its service to remaining service departments.