Overhead Allocations

Question 1

What are the 3 methods of reassigning service departmental costs?

Answer 1

Direct method
‘Step’ method
Linear algebraic method

Question 2

What is the direct method?

Answer 2

All service department costs are reassigned directly to manufacturing departments proportionally

Question 3

What is the step method?

Answer 3

Service department that provides the most interdepartmental services is allocated first to the other departments.

Question 4

What is the linear algebraic method?

Answer 4

Calculates and reallocates all costs simultaneously using the interdepartmental costs as percentages of the department’s total costs in an algebraic formula