Companies Are Free to Use the Direct, Step-Down, and Reciprocal

question 54

Essay

Companies are free to use the direct, step-down, and reciprocal allocation methods when dealing with service-department costs.
Required:
A. How does the direct method work? What is its chief limitation?
B. Is the step-down method an improvement over the direct method? Explain.
C. Which of the three methods is the most correct from a conceptual viewpoint? Why?

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