When Would the Direct Method and the Step-Down Method of Service

question 8

Multiple Choice

When would the direct method and the step-down method of service department cost allocation result in identical allocations being made to the operating departments?

• A) when there is only one service department
• B) when all of the costs in the service departments are fixed costs
• C) when there is an equal amount of service departments and operating departments
• D) both A and B above

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Definitions:

Cash Basis

An accounting method where revenues and expenses are recognized only when cash is received or paid, regardless of when the transaction occurred.

Financial Statements

Papers presenting a snapshot of a firm's financial health, which include the balance sheet, income statement, and cash flow statement.

Accurate

The quality of being precise, correct, and free from errors.

Adjust Expense

The process of allocating expenses incurred in one period to the correct period, often through adjusting entries in the accounting records.