Cost allocation is method of allocating of a common cost to several cost objects. For example, a business might assign or allot the cost of an expensive computer system to the three main areas of the company that use the system. A corporation with only one electric meter might allocate the electricity bill to several departments in the company.
Definition: Reciprocal method is a method of allocating service department costs to other departments that gives full recognition to interdepartmental services. Explanation: The reciprocal method gives full recognition to interdepartmental services. Under the step method, only partial recognition of interdepartmental services is possible. The
Direct Method of Cost Allocation-Service Department Costing: Definition: Direct method is a cost allocation method under which any of the allocation base attributable to the service departments themselves is ignored; only the amount of the allocation base attributable to the operating departments is used