Chapter 2

Question 1

True or false: Overheads incurred in the service departments must be attributed to production.

Answer 1

True

Question 2

What are overheads?

Answer 2

Any expense incurred to support the business while not being directly related to a specific product or service.

Question 3

Explain direct tracing

Answer 3

Used to allocate costs to the department that incurred them.

Question 4

Explain apportionment

Answer 4

Used when costs cannot be traced to one specific department, so they get divided accordingly.

Question 5

Explain the direct method of apportionment.

Answer 5

The direct method assigns a service department’s overhead costs only to production departments—not to other service departments. This means it ignores any services provided between service departments. So, there’s no need to decide which service department’s costs to assign first or last. You can apportion each service department’s overhead without worrying about any specific order.

Question 6

Explain the step-down method of apportionment.

Answer 6

Assigns service department costs to boht production and service departments. It starts with the service department that has the most direct interactions with other departments, referred to as the primary service department.

Question 7

Explain the linear algebraic method of apportionment.

Answer 7

This method can assign and reassign costs between service departments using linear equations, as opposed to the step-down method where service departments only incur costs once.