Chapter 16 Vocabulary: Allocation of Support-Department Costs, Common Costs, and Revenues

Operating Department / Production Department

Department that directly adds value to a product or service

Support Department / Service Department

Department that provides the services that assist other internal departments (operating departments and other support departments) in the company

Single-Rate Method

Allocation method that allocates costs in each cost pool to cost objects using the same rate per unit of a single allocation base without distinguishing fixed from variable costs

Dual-Rate Method

Allocation method that classifies costs in each cost pool into two pools (a variable-cost pool and a fixed-cost pool) with each pool using a different cost-allocation base

Direct Method

Cost allocation method that directly allocates each support department’s costs to operating departments only

Step-Down Method / Sequential Allocation Method

Cost allocation method that allocates support department costs to other support departments and to operating departments in a sequential manner than partially recognizes the mutual services provided among all support documents

Reciprocal Method / Matrix Method

Cost allocation method that fully recognizes the mutual services provided among all support departments