direct method
an allocation procedure that ignores the relationship amoung support activities and focuses instead on the relationship between support and line activities
dual rate allocations
a procedure that employs two separate drivers to allocate fixed and variable costs in a cost pool
line activity
an activity that is directly related to making and selling the firm's products and services
reciprocal method
an allocation procedure that fully accounts for the relationship amoung support activities
reciprocity in consumption
a consumption pattern in which two departments provide services to each other
self consumption
a support department consuming its own output
sequential allocation
also known as step down method
step down method
an allocation prcedure taht partially accounts for the relationship amount support activities
support activity
an activity that is not a line activity. these activities help the firm execute the line activity
two factor allocation
see dual rate allocation
why is it import to account for reciprocity amoung support activities
1 it increases the accuracy of cost estimates
2 allocating the cost of support departments helps line managers become aware of teh costs of the services they consume
three methods to allocate support cost
1 direct
2 step down
3 reciprocal
when computing percentages for allocating cost we ignore...
self consumption
In the direct method do we allocate cost to other support lines
no
using the direct method we ignore....
consumption used by other support lines
steps to step down method
1 rank ordering support activities
2 start by allocating highest ranked cost to lower ranked cost
the key step to performing a step down method
is to rank the support cost pools according to some criterion
the reciprocal method is conceptually the most appealing because....
it takes into account all of the reciprocity in consumption
although recip is the most appealing it is also the most....
complex
