This preview shows page 1. Sign up to view the full content.
Unformatted text preview: is shown at the bottom of the column.
As discussed previously, Note d in Exhibit 1-2 is of particular importance. In calculating Administration costs
per salary dollar, the denominator consists of the salary dollars in the Mowing and Special Projects cost centers
only, i.e. the receiving cost centers.
In summary, the total costs in an organization’s production centers are determined by a combination of their
direct and distributed costs, plus the costs allocated to them from the service centers. The stepdown method shown
in Exhibit 1-2 is the formal technique used to carry out the process.
Key Aspects of the Stepdown Method. There are several important points to keep in mind when carrying out
an allocation effort using the stepdown method.
1. Only service center costs are allocated; production center costs are not. Production centers receive costs from
service centers, but once a service center cost has been allocated to a production center it stays there.
2. To carry out the stepdown process, a basis of allocation must be chosen for each serv...
View Full Document
This document was uploaded on 03/30/2014.
- Spring '14