Unformatted text preview: allocate maintenance only to production centers
and not to other service centers. Alternatively, maintenance could allocated to other service centers (such as we did
here with the Administration cost center) as well as to the production centers (Mowing and Special Projects cost
centers here). This approach, known as the sequential or stepdown allocation method is discussed more fully in the
next section. Second, although maintenance is a service center, it has not been allocated to itself; that is, we do not
calculate the cost of maintaining the maintenance department. (This is the reason we do not need to know the
number of machines located in the maintenance department.) Third, regardless of the method being used, all costs
eventually end up in production centers.
We will defer the allocation of the Administration cost center until we have discussed a few other matters concerning the allocation rate, and until we have looked at Decision #5 (selecting an allocation method).
Determining the Allocation Rate. As the above example suggests, the following formula can be used to determ...
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- Spring '14
- ........., Boston University School of Management, Crimson Press Curriculum Center, Professor of Accounting and Control