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After reading this chapter, you should be able to:

  LO 1   Explain why service costs are allocated.

  LO 2   Allocate service department costs using the direct method.

  LO 3   Allocate service department costs using the step method.

  LO 4   Allocate service department costs using the reciprocal method.

  LO 5   Use the reciprocal method for decisions.

  LO 6   Explain why joint costs are allocated.

  LO 7   Allocate joint costs using the net realizable value method.

  LO 8   Allocate joint costs using the physical quantities method.

  LO 9   Explain how cost data are used in the sell-or-process-further decision.

  LO 10   Account for by-products.

  LO 11   (Appendix) Use spreadsheets to solve reciprocal cost allocation problems.