Question
Describe how the direct, step-down and reciprocal cost allocation methods differ in the way they recognise reciprocal services among support departments. (6 marks) 2. The
Describe how the direct, step-down and reciprocal cost allocation methods differ in the way they recognise reciprocal services among support departments. (6 marks)
2. The following comparative data is provided for the Laventura Boating Company. It is stated that the company has more accurate product cost information using activitybased costing to allocate overhead.
a. Describe the differences in profitability resulting from the two costing approaches. (4 marks)
b. Explain why the overhead cost is so different using activity-based costing. (2 marks)
c. List 2 possible decisions that management might take due to the significant change in relative profitability of the two types of boats resulting from the use of ABC. (2 marks)
d. Activity-based costing undoubtedly provides better cost information than most traditional costing methods, such as plant wide and department allocation methods. However, ABC has its limitations. What are the advantages and disadvantages of using activity-based costing?
So i have attached the rubric for the assignment. So you would have an idea as to how the marks are allocated.
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