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we cant use salary dollars from the administration

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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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