Quickdraw Corporation has two service departments (Accounting and Human Resources) and two production departments (Machining and Assembly). The number of employees in each department follows. $\begin{array} { l r }
\text { Accounting } & 10 \
\text { Human Resources } & 20 \
\text { Machining } & 150 \
\text { Assembly } & 100
\end{array}$ Quickdraw uses the step-down method of cost allocation and allocates cost on the basis of employees. Human Resources and Accounting cost amounts to $2,400,000 and $1,300,000 respectively. Management believes that the Human Resources department provides more service to the firm than Accounting. How much Human Resources cost would be allocated to Machining?
A)$0.
B)$1,285,714.
C)$1,333,333.
D)$1,384,615.
E)$1,440,000.

Question

Quickdraw Corporation has two service departments (Accounting and Human Resources) and two production departments (Machining and Assembly). The number of employees in each department follows. $\begin{array} { l r } 
\text { Accounting } & 10 \
\text { Human Resources } & 20 \
\text { Machining } & 150 \
\text { Assembly } & 100
\end{array}$ Quickdraw uses the step-down method of cost allocation and allocates cost on the basis of employees. Human Resources and Accounting cost amounts to $2,400,000 and $1,300,000 respectively. Management believes that the Human Resources department provides more service to the firm than Accounting. How much Human Resources cost would be allocated to Machining?
A)$0.
B)$1,285,714.
C)$1,333,333.
D)$1,384,615.
E)$1,440,000.

Quizplus · Accepted Answer

Using the step-down method, we first allocate the Human Resources cost to itself and Accounting, based on the number of employees:

Human Resources: $2,400,000
Accounting: $1,300,000 + ($2,400,000 × 20/30) = $2,000,000

Then, we allocate the total cost of Accounting and Human Resources (which is $3,400,000) to Machining and Assembly, based on the number of employees in each department:

Machining: $3,400,000 × 150/(150 + 100) = $2,040,000
Assembly: $3,400,000 × 100/(150 + 100) = $1,360,000

Finally, we allocate Human Resources cost (which is already allocated to Accounting) to Machining based on the number of employees:

Machining: $2,000,000 × 150/(150 + 100) = $1,200,000

Therefore, the amount of Human Resources cost allocated to Machining is $1,200,000, which corresponds to option D.

Quickdraw Corporation Has Two Service Departments (Accounting and Human Resources)