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Which two of the following statements about service cost centre overhead reapportionment relate to the step -down method?
A) inter service cost centre is recognized
A) a different apportionment basis maybe applied for each service cost centre
C) it enables overhead to be absorbed directly from service cost centres into product costs
D) all costs are reapportioned straight to production cost centresLet’s take the example of two manufacturing departments, eg assembly and finishing, and two service departments, for example, maintenance and canteen. The service departments provide services to the manufacturing departments and to each other.
The aim is to get all the costs ultimately into the manufacturing departments hence into units produced.
The step-down method will start with either service department, let’s say canteen, and apportion to the two manufacturing departments and to the maintenance service department. Secondly, the costs now in the maintenance department are apportioned to the manufacturing departments only. None of the costs go back to the canteen.
So:
A True. We have recognised canteen costs going to maintenance.
B True. It depends how each spends its own time and effort.
C No. We first apportioned canteen to maintenance then maintenance to the manufacturing departments before we can start absorbing into products.
D No. Canteen costs went via maintenance.
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