(Appendix 4B) Watts Corporation has a Custodial Services Department that services the company's Maintenance Department and its two operating departments. Costs of the Custodial Services Department are allocated to other departments on the basis of square feet of space occupied. The amount of space occupied by each department is given below:
Budgeted costs in the Custodial Services Department total $43,200.
-Suppose the company uses the step-down method of allocation and the costs of the Custodial Services Department are allocated first.The amount of Custodial Services Department cost allocated to the Maintenance Department would be:
A) $2,592
B) $2,700
C) $2,880
D) $0

Question

(Appendix 4B) Watts Corporation has a Custodial Services Department that services the company's Maintenance Department and its two operating departments. Costs of the Custodial Services Department are allocated to other departments on the basis of square feet of space occupied. The amount of space occupied by each department is given below:
  Budgeted costs in the Custodial Services Department total $43,200.
-Suppose the company uses the step-down method of allocation and the costs of the Custodial Services Department are allocated first.The amount of Custodial Services Department cost allocated to the Maintenance Department would be:
A) $2,592 
B) $2,700 
C) $2,880 
D) $0

Quizplus · Accepted Answer

Allocation base for Custodial Services Department costs = 6,000 + 30,000 + 60,000 = 96,000
Custodial Services Department cost allocated to the Maintenance Department = $43,200 × (6,000/96,000) = $2,700

(Appendix 4B) Watts Corporation Has a Custodial Services Department That