Sunday, 4 February 2018

Methods of Cost allocation

There are three methods for allocating service department costs: The first method, the direct method, is the simplest of the three. The direct method allocates costs of each of the service departments to each operating department based on each department's share of the allocation base.

There are three methods to allocate service department costs to production departments, namely:

  • Direct method (direct method)

  • Gradual method (step method)

  • The reciprocal method

In writing this brief will try to discuss about these three methods.

Direct Method

This method is most widely used because it is much simpler than with other methods. In this method, the costs that occur in the services allocated directly to the Department's operations regardless of the services rendered to the other service departments. In other words, this method does not consider a relationship of reciprocal services rendered between the other service departments.

Step wise Method

In this method, one of the Department's services will be selected for the entire cost is allocated to the Department and other services to the Department of surgery. The selection of the Service Department was first chosen to be allocated based on the services which the Department provides services to a larger Department other services.

Reciprocal Method

In this method, consider reciprocal links service provided between one Department services with other service departments. In contrast to the gradual method whereby the Ministry allocated 1 services the first time did not receive back the cost of the Department services 2. While the reciprocal method in all the Department's services will cost mutual acceptance of the Department other services depend on the service received.

There are a number of other cost allocation methods, but the above two methods are the most popular and are best used in the industry. It is important to keep in mind that the method you use to schedule your company's profits and its final existence reflects the actual values of your products.

1 comment:

  1. Thanks Happy Happy for sharing quite an informative article on the three methods of allocating departmental costs. I believe any student who still finds it difficult to understand these methods can get Cost Accounting homework help from professional tutors available online such as