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Problem - The direct method of support department cost allocation was the norm until the mid-1970s when the Cost Accounting Standards Board (CASB) issued Cost Accounting Standard (CAS) 418, which prescribed usage of the reciprocal services method. In response to this requirement, many companies complained that they lacked the expertise and computational resources to implement this more complex method. Thus, the final version of CAS 418 allowed usage of "the sequential method, or another method the results of which approximate that achieved by [the reciprocal services or sequential methods]."
Was the CASB wise to back down from its initial requirement that companies use the most accurate method for support department cost allocation?
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