Answer Happy

Specify the strengths and weaknesses among the three methods of allocating the costs of service divisions to production divisions. The ignores any services rendered by one support division to another; it allocates each support division's costs directly to the operating divisions. This method is simple to calculate, easy to understand, and inexpensive to implement, but may not reflect the economic reality of value being added by support division activities. The allows for partial recognition of support rendered by support divisions to other support divisions. With this method, if one division provides a majority of the interdivisional support, there is minimal distortion of cost; however, this method requires support divisions to be ranked. The allocates costs by explicitly recognizing the mutual services rendered among support divisions. This method is, conceptually, the best method. It reflects economic reality of support divisions and does not require them to be ranked. However, this method is often difficult for non-accountants to understand, complex to calculate, and most expensive.