In determining the right method for allocating equipment depreciation to departments, the best recommendation is to:

INTRODUCTION TO COST ACCOUNTING

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Question [CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]

A	use the cost of equipment in the department as a basis for allocation
B	charge the amounts to General Plant
C	allocate on the basis of square footage used in a given department
D	allocate on the basis of companywide rates
E	use algebraic techniques

Explanation:

Detailed explanation-1: -The most theoretically correct method of allocating service department costs is the algebraic method.

Detailed explanation-2: -The sequential method (also known as the step-down method), allocates costs to operating departments and other service departments sequentially, but only in one direction.

Detailed explanation-3: -The reciprocal method is the most accurate of the three methods for allocating service department costs, because it recognizes reciprocal services among service departments. It is also the most complicated method, because it requires solving a set of simultaneous linear equations.

Detailed explanation-4: -The most common cost bases used to calculate and allocate indirect cost rates are modified total direct costs and total direct salaries (with or without fringe benefits associated with those salaries).

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