Methods for Allocating Costs Among Support Departments

The video tutorial explains cost allocation within organizations, focusing on support departments that do not generate external value. It covers three methods: the direct method, which allocates costs from support to operating units; the reciprocal method, which allows cost allocation between support departments; and the sequential or step down method, which involves a one-way allocation process. Each method is tailored to the organization's needs, ensuring costs are appropriately distributed among departments.

Explain the sequential or step down method of cost allocation.

How do support departments contribute to the cost allocation process?