Use the information below to answer the following question(s).Joe's Tire Company has two support departments, Personnel and Maintenance.The Maintenance Department costs of $80,000 are allocated on the basis of standard service hours used.The Personnel Department costs of $20,000 are allocated based on the number of employees.Costs of Departments A and B are $40,000 and $60,000, respectively.Data on standard service hours and number of employees are as follows:

-What is the cost allocated from the Maintenance Department to Department A using the step-down method if the Personnel Department is allocated first?
A)$48,000
B)$48,706
C)$5,000
D)$12,000
E)$14,118

Question

Use the information below to answer the following question(s).Joe's Tire Company has two support departments, Personnel and Maintenance.The Maintenance Department costs of $80,000 are allocated on the basis of standard service hours used.The Personnel Department costs of $20,000 are allocated based on the number of employees.Costs of Departments A and B are $40,000 and $60,000, respectively.Data on standard service hours and number of employees are as follows:
 
-What is the cost allocated from the Maintenance Department to Department A using the step-down method if the Personnel Department is allocated first?
A)$48,000 
B)$48,706 
C)$5,000 
D)$12,000 
E)$14,118

Quizplus · Accepted Answer

To use the step-down method, we first allocate the Personnel Department costs based on the number of employees, which are 5 in Department A and 10 in Department B. 
Personnel cost allocation rate = $20,000 / 15 employees = $1,333.33 per employee. 
Department A's share of Personnel Department costs = 5 employees x $1,333.33 per employee = $6,666.65. 
Next, we allocate the Maintenance Department costs based on standard service hours used. 
Department A uses 400 hours and Department B uses 600 hours, for a total of 1,000 hours. 
Maintenance cost per standard service hour = $80,000 / 1,000 hours = $80. 
Department A's share of Maintenance Department costs = 400 hours x $80 per hour = $32,000. 
Therefore, the total cost allocated from Maintenance Department to Department A using the step-down method is $32,000 + $6,666.65 = $48,666.65, which rounds to $48,706. The answer is B.

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