What is conceptually the most defensible method for allocating support-department costs? Why?

The reciprocal method is theoretically the most defensible method because it fully recognizes the
mutual services provided among all departments, irrespective of whether those departments are
operating or support departments.

15-9 Distinguish between two methods of allocating common costs.

The stand-alone cost-allocation method uses information pertaining to each user of a cost object
as a separate entity to determine the cost-allocation weights.
The incremental cost-allocation method ranks the individual users of a cost object in the
order of users most responsible for the common costs and then uses this ranking to allocate costs
among those users. The first-ranked user of the cost object is the primary user and is allocated
costs up to the costs of the primary user as a stand-alone user. The second-ranked user is the first
incremental user and is allocated the additional cost that arises from two users instead of only the
primary user. The third-ranked user is the second incremental user and is allocated the additional
cost that arises from three users instead of two users, and so on.

15-10 What are the challenges of using the incremental cost allocation method when allocating
common costs and how might they be overcome?

The challenges of using the incremental method is that every user wants to be considered the
lowest-ranked user because only small incremental costs are allocated to each subsequently-
ranked user. No user wants to be the first-ranked user because all costs up to the costs of the
primary user are allocated to that user. This challenge could be overcome by using the Shapley
Value method. This method calculates an average cost based on the costs allocated to each user
as first the primary user, the second-ranked user, the third-ranked user, and so on.