What Allocation Method Recognizes That Service Departments Often Provide Each

question 192

Multiple Choice

What allocation method recognizes that service departments often provide each other with interdepartmental services,and it is therefore considered to be the most accurate method for allocating service department costs to operating departments?

• A) The direct method.
• B) The step-down method.
• C) The reciprocal method.
• D) The allocation by cost behaviour method.

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Definitions:

Long-Run Total Cost

The aggregate cost of production when all factors of production are variable and the scale of operation can change.

Units of Variable K

In economics, this refers to units of a variable factor of production (K often denotes capital), where the quantity can be changed in the short run to increase or decrease production.

Units of Output

The quantity of goods or services produced by an entity in a given period of time.

Marginal Cost

The cost associated with producing an additional unit of a product or service.