5.5 The three methods differ in how they recognise reciprocal services among support departments a The direct allocation method ignores any services rendered by one support department to another it allocates each support department’s total costs directly to the operating departments. b The step-down allocation method allows for partial recognition of support rendered by support departments to other support departments. c The reciprocal allocation method allocates costs by explicitly recognising the mutual services rendered among support departments. 5.6 The incremental common cost-allocation method first allocates the common costs to the primary user the incremental party is allocated that component of the common cost arising because there are two users and not just the primary user. The stand-alone common cost-allocation method allocates the common cost on the basis of each user’s percentage of the total of the individual standalone costs. 5.7 Disagree. The different costs for different purposes notion means that the same cost figure need not be appropriate for each and every purpose. However, just because a cost is allocated for one purpose does not preclude it from being relevant for other purposes. 5.8 The distinction between labour-paced and machine-paced operations is important when examining the possible cost-allocation bases to use in a costing system. In labour-paced operations, it is likely that labour-hours will capture cause-and-effect relationships. In machine-paced operations, however, there is a greater likelihood that machine-related variables (such as machine-hours) will capture cause-and-effect relationships. These are general guidelines whose validity needs to be examined in specific cases.
