What are the advantages and disadvantages of the step-down method of activity-based costing relative to the step-down method of cost allocation?© BrainMass Inc. brainmass.com June 4, 2020, 2:47 am ad1c9bdddf
The step-down method of activity-based costing is a methodology for allocating all overhead costs down to a product cost level in a company that employs several support teams and typically manufactures more than a single product.
Consider a firm that manufactures both wooden tables and metal tables. The portion of the plant that makes wooden tables is labor-intensive and requires a large workforce. The metal table division is full of robotic welders and very few employees. The firm has both a human resource department and an engineering department, the costs of which must be accurately allocated to each product made. Because the wooden table division is so ...
This solution explains the step-down method of activity-based costing and then discusses its advantages and disadvantages, comparing them to the step-down method of cost allocation.