Question

Product costs estimated using the sequential method of cost allocation

	A.	the first step is to develop a reciprocal cost equation.
	B.	the first step is to allocate the service department costs to the production departments.
	C.	one service department is chosen to allocate costs first.
	D.	service department costs are allocated directly to the production departments.

Answer 1

Product costs estimated using the sequential method of cost allocation

Answer: (C) one service department is chosen to allocate costs first.

The sequence of allocation generally starts with the service department that has incurred the greatest costs. After this department’s costs have been allocated, the service department with the next highest costs has its costs allocated, and so forth until the service department with the lowest costs has had its costs allocated. Costs are not allocated back to a department that has already had all of its costs allocated.

So, one service department is chosen to allocate costs first.