Supporting Departments

Question 1

Direct method

Answer 1

Ignore work that supporting departments do for each other.

Question 2

Step Down

Answer 2

Allocate supporting costs in a sequential manner. Partially recognise work that supporting departments do for each other.

Question 3

Ranking of supporting departments

Answer 3

Usually starts with the support dept that renders the highest % of its total services to other supporting depts.

Question 4

Reciprocal Services

Answer 4

Fully recognise work that supporting departments do for each other.

Question 5

Total reciprocated cost of supporting department

Answer 5

= DC + allocated costs

Question 6

Direct method advantages

Answer 6

• Simple and easy to use.
• More understandable to managers.

Question 7

Direct method disadvantages

Answer 7

Ignores reciprocal services provided among supporting departments lead to inaccuracy.
Suitable if they do little reciprocal work.
Not suitable if they do a lot of reciprocal work.

Question 8

Step down suitability

Answer 8

If one supporting department does a lot for others but the other does little.

Question 9

Reciprocal advantage

Answer 9

More accurate