Comparing Cost Allocation Methods

Decision making in companies is often facilitated by utilizing cost allocation methods. Anthony's Orchards is measuring its performance and reviewing its service department cost allocation methods to determine whether current methods reflect the true value and profitability of the businesses. Write a 1- to 2-page memo to the accounting manager on why you would recommend using a particular cost allocation method.

To prepare for your memo use data from the Anthony's Orchards website and calculate the three different service department methods (direct, step-down, and reciprocal) and compare and contrast the methods. Choose one method and state why you recommend this method for Anthony's Orchards.

Your memo should reflect the application of the material presented this week as well as anything from previous weeks and Required and/or Optional Resources.

A description of your recommendation, a rationale for why it is important, and a description of the consequences of not following the recommendation should be included in the memo.



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