Asked by Kassy Lazcano on Jul 14, 2024
Verified
In the preparation of departmental income statements,the preparer completes the following steps in the following order:
A) Identify direct expenses; allocate indirect expenses; allocate service department expenses.
B) Identify indirect expenses; allocate direct expenses; allocate service department expenses.
C) Identify service department expenses; allocate direct expenses; allocate indirect expenses.
D) Identify direct expenses; allocate service department expenses; allocate indirect expenses.
E) Allocate all expenses.
Direct Expenses
Costs that are directly traceable to a specific cost object, such as a product, department, or project.
Indirect Expenses
Costs that are not directly linked to the production of goods or services, such as administration and marketing expenses.
- Comprehend the fundamental concepts and strategies used in the allocation of costs to various departments.
- Comprehend the effects of allocation decisions on the financial statements of both departments and the entire company.
- Distinguish between direct and indirect expenses within the context of departmental income statements.
Verified Answer
KS
kirsten schlangeJul 16, 2024
Final Answer :
A
Explanation :
The correct sequence for preparing departmental income statements involves first identifying direct expenses that can be directly attributed to a department. Next, indirect expenses, which cannot be directly linked to a specific department, are allocated based on a suitable basis. Finally, expenses from service departments, which provide support to other departments, are allocated to those benefiting departments. This process ensures that all costs are accounted for in the respective departments.
Learning Objectives
- Comprehend the fundamental concepts and strategies used in the allocation of costs to various departments.
- Comprehend the effects of allocation decisions on the financial statements of both departments and the entire company.
- Distinguish between direct and indirect expenses within the context of departmental income statements.
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