CMA Intermediate · Cost Accounting · Overheads
Under CAS 3 (Production and Operation Overheads), how should the cost of a service department used by several production departments be handled?
Service department costs are reapportioned to the production departments that use the service, on a rational basis reflecting the benefit or usage, such as maintenance hours. They are not ignored, written off wholesale, or loaded onto one department.
- ACharged entirely to the department with the highest output
- BIgnored in product costing and written off to the profit and loss account
- CTreated as direct material of the final product
- DApportioned to the production departments it serves on a rational basis of the benefit receivedCorrect
Explanation
Service department costs are not charged to products directly. They are first collected and then reapportioned to the production departments on a rational basis reflecting the service used, such as stores requisitions or maintenance hours, before absorption.
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