Chapter 4.B, Problem 3E

To determine

Step Down Method of Cost Allocation:

• Under this method of cost allocation, the costs incurred by the various cost centers such as the departments of an organization, are allocated to other departments.

• The cost allocation is done by determining the sequence in which costs of departments with the largest cost incurred are to be allocated.

• The next step is to choose an appropriate basis for cost allocation and then distributing the costs from the first cost center to the next.

• The process is repeated till costs from all the predetermined cost centers are distributed to the final level.

Cost allocation from service departments to operating departments.