ExpertEasy2 marksMultiple Choice
ACCA · Question 11 · C. Cost accounting techniques
An aerospace manufacturing company has two production departments (Machining and Assembly) and two service departments (Maintenance and IT). Maintenance provides services to IT, and IT provides services to Maintenance.
Which method of overhead apportionment should the company use to fully recognize the reciprocal services between the two service departments?
An aerospace manufacturing company has two production departments (Machining and Assembly) and two service departments (Maintenance and IT). Maintenance provides services to IT, and IT provides services to Maintenance.
Which method of overhead apportionment should the company use to fully recognize the reciprocal services between the two service departments?
Answer options:
A.
The direct apportionment method
B.
The step-down method
C.
The repeated distribution method or simultaneous equation method
D.
The blanket overhead rate method
How to approach this question
Identify the key phrase 'reciprocal services' (two-way services). Only algebraic (simultaneous) or repeated distribution methods handle this.
Full Answer
C.The repeated distribution method or simultaneous equation method✓ Correct
When service departments provide services to each other (reciprocal servicing), the repeated distribution method or the simultaneous equation (algebraic) method must be used to fully and accurately apportion overheads to the production departments.
Common mistakes
Selecting the step-down method, which only partially solves the problem by recognizing one-way service.
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