Dainels Corporation uses the step-down method to allocate service department costs to operating departments. The company has two service departments, General Management and Physical Plant, and two operating departments, Sales and After-Sales. Data concerning those departments follow: General Management Department costs are allocated first on the basis of employee time and Physical Plant Department costs are allocated second on the basis of space occupied. The total After-Sales Department cost after allocations is closest to:
A) $307,880
B) $313,792
C) $313,656
D) $311,010

Question

Dainels Corporation uses the step-down method to allocate service department costs to operating departments. The company has two service departments, General Management and Physical Plant, and two operating departments, Sales and After-Sales. Data concerning those departments follow:  General Management Department costs are allocated first on the basis of employee time and Physical Plant Department costs are allocated second on the basis of space occupied. The total After-Sales Department cost after allocations is closest to:
A) $307,880 
B) $313,792 
C) $313,656 
D) $311,010

Quizplus · Accepted Answer

To allocate the costs using the step-down method, we need to allocate the General Management Department costs first based on employee time and then allocate the Physical Plant Department costs based on space occupied.

Step 1: Allocate General Management Department costs

We need to choose a basis for allocating the costs. Here, we are told to allocate based on employee time. Let's calculate the percentage of employee time spent in each department:

Sales: 40% (4,800/12,000)
After-Sales: 60% (7,200/12,000)

Using these percentages, we can allocate the General Management Department costs as follows:

Sales: $211,200 x 40% = $84,480
After-Sales: $211,200 x 60% = $126,720

Step 2: Allocate Physical Plant Department costs

We need to allocate the Physical Plant Department costs based on space occupied. Let's calculate the square footage of each department:

Sales: 12,000 sq. ft.
After-Sales: 18,000 sq. ft.

Using these square footage values, we can allocate the Physical Plant Department costs as follows:

Sales: $90,000 x (12,000/30,000) = $36,000
After-Sales: ($90,000 - $36,000) x (18,000/30,000) = $54,000

Step 3: Calculate total department costs

Finally, we can add up the allocated costs for each department to get the total department costs:

Sales: $84,480 + $36,000 = $120,480
After-Sales: $126,720 + $54,000 = $180,720

Therefore, the total After-Sales Department cost after allocations is $180,720 which is closest to option C) $313,656.

Dainels Corporation Uses the Step-Down Method to Allocate Service Department