What is the primary drawback of direct and step-down allocation methods?

The primary drawback of direct and step-down allocation methods is that they do not accurately estimate service costs. This occurs because these methods generally simplify the allocation of overhead costs to services by making broad assumptions about how costs are incurred.

In the direct method, costs are allocated directly to services without considering how support departments interact with one another. This can lead to inaccuracies, as services may be served by multiple departments, and costs might not reflect the true consumption of resources. The step-down method, while a bit more refined by allocating some costs from support departments to others before allocating to services, still fails to capture the full complexity of the relationships and interactions between departments. As a result, both methods can lead to misleading cost information, impacting decision-making.

The other options contribute to the discussion regarding cost allocation methods but are not central to their primary limitations. Complexity, data collection needs, or ignoring indirect costs may vary in significance but do not encapsulate the fundamental issue of accuracy in service cost estimation.