Which cost allocation method would distribute overhead directly to departments without considering interdepartmental services?

• A. Direct method
• B. Step-down allocation method
• C. Double distribution method
• D. Simultaneous equations method

Answer: (A)

Allocating overhead without considering interdepartmental services is what the direct method does. In this approach, overhead from support or service departments is assigned straight to each department based on a single base (like labor hours or square footage) and no charges are made for services one department provides to another. This directly satisfies the criterion of not recognizing reciprocal internal service flows, making it the simplest and quickest way to allocate costs.

Keep in mind that while the direct method is easy to implement, it can distort department costs if internal service sharing is substantial, since it ignores the costs of services exchanged between departments. Other methods, like the step-down approach, allocate some interdepartmental costs in stages, and the reciprocal (simultaneous equations) method fully recognizes mutual services; the double distribution method isn’t a standard, widely used approach.