Service department costing

[Explanations]

Learning objectives:

  • What is the difference between service departments and operating departments? What are some examples of these two types of departments?
  • What are the common methods used by business organizations to allocate the cost of service departments to operating departments?
  • Explain and exemplify direct method, step down method and reciprocal or algebraic method of apportioning a department’s cost to other departments.
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