Under what conditions are the results from using the direct method of allocation the same as...

Under what conditions are the results from using the direct method of allocation the same as those from using the other two methods? why?

Expert Solution

There are three methods of allocating costs

a) Direct Method: It allocates support costs only to Operating Departments and does not consider any interaction between Support Departments prior to allocation.

b) Step Dowm Method: It allocates support costs to other support departments and to operating departments but recognise only one-Way Interaction between Support Departments prior to allocation

c) Reciprocal Method: It allocates support department costs to operating as well as support departments by fullyrecognizing the mutual services provided among all support departments.

Under the follwing conditions, direct method of allocation of overheads provide same results as ofother methods:

1. No support department provide services to other support depratments.

2. No support departments provide services to each other mutually.

In the above mention cases there will be no need to allocate one support department's cost to the other support department, and the allocation of costs willfollow the direct method pattern even if other methods are used.

ekkarill92 answered 2 years ago

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