Question

Step Method recognizes that one service department can provide services to others and allocates

Option 1: Costs based on the number of employees in each department.

Option 2: Costs based on the square footage of each department.

Option 3: Costs based on the number of services provided.

Option 4: Costs based on a predetermined percentage of total expenses.

Answer 1

The step method can allocate costs based on various factors, such as the number of employees, square footage, services provided, or a predetermined percentage. While the example of 'The Clip Joint' demonstrates variable costs based on employees, it doesn't directly illustrate the step method's interdepartmental allocations.

Step-by-step explanation:

The step method is used in managerial accounting to allocate service department costs to other departments, including both production and service departments. The allocation of costs in the step method can indeed be based on a variety of factors, including the number of employees, the square footage, the number of services provided, or a predetermined percentage of total expenses. In the case provided, the variable costs of hiring additional barbers at 'The Clip Joint' barber shop reflects a scenario where costs are associated with the number of employees; however, it does not directly relate to the step method, as this example does not illustrate interdepartmental services.

It's important to understand that the method used for cost allocation in the step method should reflect the fairest possible distribution of service costs among departments. The choice would depend on which basis most accurately reflects the use of services by each department.