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Question about accounting for overheads: Direct and Step down method.

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA MA – FIA FMA › Question about accounting for overheads: Direct and Step down method.

  • This topic has 3 replies, 2 voices, and was last updated 1 month ago by John Moffat.
Viewing 4 posts - 1 through 4 (of 4 total)
  • Author
    Posts
  • October 9, 2017 at 11:56 am #410016
    ei8ht
    • Topics: 8
    • Replies: 3
    • ☆

    I’m not sure what these two methods are, if I’m not wrong I think from the lectures we learned about “Continuous or repeated distribution” and “The algebraic method”. I tried using the algebraic method but it didn’t work.

    Also, I’m using the 1st Sept 2016 to 31st August 2017 edition of the revision kit and I’m wondering if that’s alright? 🙂

    Thanks!

    October 9, 2017 at 12:16 pm #410018
    John Moffat
    Keymaster
    • Topics: 56
    • Replies: 41529
    • ☆☆☆☆☆

    The direct method is the name given to the way we recharge the overheads of service departments to production departments, when the service departments do not do work for each other.

    The step-down method is where one service department does work for another service department (as well as production departments) but the other service department only does work for production departments.

    Where one service department does work for another, but the other also does work for the first service department, then it is reciprocal method (which you can do either by repeated distribution or using the algebraic method – both give the same answer).

    Some books use the words differently, but they should not do. What is needed for the exam is what I go through in the lectures, and you will find the following article by the examining team useful for revision:

    https://www.accaglobal.com/ubcs/en/student/exam-support-resources/fundamentals-exams-study-resources/f2/technical-articles/re-apportionment-of-service-cost-centre-costs.html

    Your Revision Kit is fine to use – the syllabus has not changed.

    November 26, 2020 at 1:37 pm #596549
    joeyhaha
    • Topics: 1
    • Replies: 1
    • ☆

    why the step-down method is more accurate than the direct method.

    November 26, 2020 at 3:18 pm #596570
    John Moffat
    Keymaster
    • Topics: 56
    • Replies: 41529
    • ☆☆☆☆☆

    Because it takes into account the fact that the departments are doing work for each other.

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