Amber Company uses two producing departments (A and B) and two service departments (S1 and S2). The costs incurred in S1 and S2 are allocated to Departments A and B and included in their factory overhead rates for costing products. S1 costs are allocated based on the number of employees, S2 costs are allocated based on direct labor-hours, and the production departmental overhead rates are also based on direct labor-hours. The following data are available for a recent period: What is the order of allocation under the step cost allocation method?
A) Service department S1 is allocated first and Service department S2 allocated second.
B) Service department S2 is allocated first and Service department S1 allocated second.
C) Service department S1 and S2 are allocated equally, so order does not matter.
D) None of above

Question

Amber Company uses two producing departments (A and B) and two service departments (S1 and S2). The costs incurred in S1 and S2 are allocated to Departments A and B and included in their factory overhead rates for costing products. S1 costs are allocated based on the number of employees, S2 costs are allocated based on direct labor-hours, and the production departmental overhead rates are also based on direct labor-hours. The following data are available for a recent period:  What is the order of allocation under the step cost allocation method?
A) Service department S1 is allocated first and Service department S2 allocated second. 
B) Service department S2 is allocated first and Service department S1 allocated second. 
C) Service department S1 and S2 are allocated equally, so order does not matter. 
D) None of above

Quizplus · Accepted Answer

Determination of order of allocation:
S1 = 2 / (2 + 6 + 9) = 11.77 %
S2 = 225 / (225 + 1,125 + 900) = 10 %
S1 is allocated first.

Amber Company Uses Two Producing Departments (A and B) and Two