Westminster Manufacturing Company has two support activities and two line activities. The following data pertain to usage patterns for the support and line activities: The costs of Maintenance are allocated based on square footage used. Human Resources costs are allocated based on number of employees. Activity A and B costs are overhead costs with predetermined overhead rates computed based on direct labor hours. If the company uses the step-down method of allocating support activities to line activities and allocates the cost of Maintenance first, what amount of Human Resources costs will be allocated to Activity A?
A) $8,000
B) $9,454
C) $20,000
D) $4,545
E) None of the above.

Question

Westminster Manufacturing Company has two support activities and two line activities. The following data pertain to usage patterns for the support and line activities:  The costs of Maintenance are allocated based on square footage used. Human Resources costs are allocated based on number of employees. Activity A and B costs are overhead costs with predetermined overhead rates computed based on direct labor hours. If the company uses the step-down method of allocating support activities to line activities and allocates the cost of Maintenance first, what amount of Human Resources costs will be allocated to Activity A?
A) $8,000 
B) $9,454 
C) $20,000 
D) $4,545 
E) None of the above.

Quizplus · Accepted Answer

Using the step-down method, we allocate the cost of Maintenance first since it has the highest allocation rate.

Maintenance costs will be allocated based on the square footage of each activity: 
Activity A allocation = (3,000/6,000) x $36,000 = $18,000
Activity B allocation = (3,000/6,000) x $36,000 = $18,000

Then, we can allocate the Human Resources costs based on the number of employees in each activity: 
Activity A allocation = (30/60) x $18,000 = $9,000
Activity B allocation = (30/60) x $14,000 = $7,000

Therefore, the amount of Human Resources costs allocated to Activity A is $9,000.

Westminster Manufacturing Company Has Two Support Activities and Two Line