Direct Method Allocation

Service Department Cost Allocation

In accounting, the costs of support service departments are allocated to the different departments within the organization that make use of those support services. There are several methods for allocating the costs of support service departments, including both the direct method allocation and the step method.

Direct Method Allocation

Using the direct method of allocating service department costs, allocate all of the service department costs to production departments. That is, all service department costs end up as overhead costs to production departments. Then, allocate none of the costs incurred from operating a support service department to other service departments; even though other service departments may in fact be utilizing the services provided by that department.

Direct method allocation

See Also:
Agency Costs
Make-or-Buy Business Decision
Lease Agreements
Lessor versus Lessee
National Association of Professional Employer Organizations (NAPEO)

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