Answer (C) is correct . Service department costs are indirect costs allocated to production departments to better determine overhead rates when the measurement of full (absorption) costs is desired. Overhead should be charged to production on some equitable basis to provide information useful for such purposes as allocation of resources, pricing, measurement of profits, and cost reimbursement.
Answer (A) is incorrect because Costs can be controlled by the service departments without allocation. However, allocation encourages cost control by the production departments. If the costs are allocated, managers have an incentive not to use services indiscriminately.
Answer (B) is incorrect because Allocation does not affect the coordination of production activity.
Answer (D) is incorrect because Allocation of costs has no effect on the efficiency of the provision of services when the department that receives the allocation has no control over the costs being controlled.
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