ExpertMedium2 marksMultiple Choice
ACCA · Question 12 · Cost accounting techniques
A drone manufacturing plant has two production departments (Assembly and Testing) and two service departments (Maintenance and IT). Maintenance provides 20% of its services to IT. IT provides 10% of its services to Maintenance.
Which method of overhead reapportionment fully recognizes this mutual service provision?
A drone manufacturing plant has two production departments (Assembly and Testing) and two service departments (Maintenance and IT). Maintenance provides 20% of its services to IT. IT provides 10% of its services to Maintenance.
Which method of overhead reapportionment fully recognizes this mutual service provision?
Answer options:
A.
Direct method
B.
Step-down method
C.
Reciprocal (repeated distribution) method
D.
Blanket overhead rate method
How to approach this question
Identify that there is a two-way (reciprocal) exchange of services. The only method that fully captures this mathematically is the reciprocal or repeated distribution method.
Full Answer
C.Reciprocal (repeated distribution) method✓ Correct
When service departments provide services to each other, the reciprocal method (using simultaneous equations or repeated distribution) is the only way to fully apportion costs accurately.
Common mistakes
Selecting the step-down method, which only recognizes the flow in one direction.
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