The correct answer is: D. reciprocal method
The reciprocal method is a cost allocation method that recognizes the mutual services provided by support departments to each other. It is the most accurate method of cost allocation, but it is also the most complex.
The indirect method is a cost allocation method that allocates the costs of support departments to operating departments only. It is the simplest method of cost allocation, but it is also the least accurate.
The step-down method is a cost allocation method that allocates the costs of support departments to operating departments in a sequential manner. It is more accurate than the indirect method, but it is not as accurate as the reciprocal method.
The following is a brief explanation of each option:
- Indirect method. The indirect method allocates the costs of support departments to operating departments only. The costs of support departments are allocated based on a predetermined allocation base, such as the number of employees or the square footage of space occupied.
- Step-down method. The step-down method allocates the costs of support departments to operating departments in a sequential manner. The costs of the support department that provides the most services to other support departments are allocated first, followed by the costs of the support department that provides the next most services, and so on.
- Reciprocal method. The reciprocal method recognizes the mutual services provided by support departments to each other. The costs of support departments are allocated using a simultaneous equation approach.
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