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Dear John Sir,
Question 8.21 ( Accounting for Overheads) states the following statement as incorrect
If a step down method is used, the order in which the service cost centre overheads are reapportioned is irrelevant
I couldn’t understand this quite as much as i thought even in step down method irrespective which service department u start first, u reach to the same answer – So as per me the above statement is Correct.
Kindly clarify on this.
Thanks
AmitIn one sense they are correct, but it is really a bit silly.
Strictly step-down is only recharging the service departments once (rather than keep recharging as we do with the reciprocal method).
If we are recharging only one, then the order will matter. However, it is an incorrect method – we should use reciprocal (and either keep recharging or using algebra – either gives the same answer) in which case it does not matter which service department you start with.
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