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12-3: One advantage of the step-down method of allocating service department costs to production departments, over...

12-3: One advantage of the step-down method of allocating service department costs to production departments, over the direct method, is the following:

(A)       Some interaction among service departments (i.e., service departments providing services to other service departments) is accounted for.

(B)       The step-down method is easier to apply (i.e., it is less complicated).

(C)       All service department costs are eventually allocated to production departments.

(D)       All interaction among service departments (i.e., service departments providing services to other service departments) is accounted for.

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Answer #1

Solution:-

One advantage of the step-down method of allocating service department costs to production departments, over the direct method, is the following:-

(A)       Some interaction among service departments (i.e., service departments providing services to other service departments) is accounted for.

The correct answer is (A). Answer (C) is incorrect because the direct method also allocates all service department costs to the production departments.

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