The direct method allocates service center costs to operating departments in proportion to activity performed for the operating departments. Thus, the direct method does not assign a service center%u2019s costs to other service centers for work performed. Allocation of service center costs uses only data pertaining to operating departments.
Under the step method, service centers are arranged in a sequence; and costs are allocated one after the other. The first service center%u2019s costs are allocated to all subsequent service centers and operating departments. The second service center%u2019s costs are then allocated to remaining service centers and operating departments but not back to the first service center. This process continues until the costs of all service centers have been allocated to operating departments.
The reciprocal method is more justifiable because it considers mutual services among service centers.?Why are we even concerned about service center costs?