Key Terms IV

Question 1

Direct method

Answer 1

The allocation of all of a service department’s costs directly to operating departments without recognising services provided to other service departments

Question 2

Interdepartmental services

Answer 2

Services provided between service departments. Also known as reciprocal services

Question 3

Operating departments

Answer 3

A department or similar unit in an organisation within which the central purposes of the organisation are carried out

Question 4

Reciprocal method

Answer 4

A method of allocating service department costs that gives full recognition to interdepartmental services

Question 5

Retainer fee approach

Answer 5

A method of allocating service department costs in which other departments are charged a flat mount each period regardless of usage of the service involved

Question 6

Service departments

Answer 6

A department that provides support or assistance to operating departments and that does not engage directly in production or in other operating activities of an organisation

Question 7

Step method

Answer 7

The allocation of a service department’s costs to other service departments, as well as to operating departments, in a sequential manner. The sequence starts with the service department that provides the greatest amount of service to other departments