True or False. Write True if the statement is True and False if otherwise.

1. It is possible for a service department to be a final cost center in a merchandising

organization.
2. The direct method allocates costs directly to intermediate cost centers, ignoring final
cost centers.
3. The dual cost-allocation method classifies costs into two pools, a budgeted cost pool and
an actual cost pool.
4. The selection of an allocation base in the direct method is easier than the selection of an
allocation base in the step method.
5. One advantage of the step method is that all reciprocal services are recognized between
service departments.
6. When budgeted cost-allocation rates are used, variations in actual usage by one division
affect the costs allocated to other divisions.
7. The simultaneous equation method can be used for both the step method and the
reciprocal method.
8. One potential disadvantage of the reciprocal method is it could overstate the cost of
running the organization's service departments.
9. When allocating service department costs, companies should use actual costs rather
than budgeted costs, and separate rates for variable and fixed costs.
10. The direct allocation method highlights recognition of services rendered by support
departments to other support departments.
11. Budgeted amounts for a support department will always exceed complete reciprocated
costs for that department.
12. The direct allocation method provides key information for outsourcing decisions
regarding support services.
13. Under the incremental method, the first incremental user usually receives the highest
allocation of the common costs.
14. When budgeted cost-allocation rates are used, user-division managers face uncertainty
about the allocation rates for that budget period.
15. When budgeted cost-allocation rates are used, variations in actual usage by one division
affect the costs allocated to other divisions.