The direct allocation method allocates the cost of service departments directly to the production departments without any intermediate allocations to other service departments. Thus, this method does not recognize any reciprocity of services among service departments.
The reciprocal allocation method recognizes reciprocity among service department by explicitly including the mutual services rendered among support departments.
The dual-rate allocation method is really a refinement of either the direct or step-down methods, depending upon how it is applied. In the dual-rate method, variable and fixed costs are allocated to departments in a two-step process, variable costs on current use and fixed costs on a long-term, maximum capacity basis. This method may not recognize any reciprocity of services among service departments.
The step-down allocation method allocates service department costs to other service departments and production departments usually starting with the service department that provides the most service to other service departments. This method allows for partial recognition of reciprocity of services among service departments.
|
