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:

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The costs incurred by a business in the process of earning revenue.

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Professionals who focus on providing the financial information necessary for management to make decisions regarding the planning, direction, and control of an organization.

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Documents prepared for the government that detail an entity's income, expenses, and other tax-related information for fiscal purposes.

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Financial documents that summarize the revenue, expenses, and profits of a business within a specific period.