Rich Company has a Custodial Services department which services the company's Maintenance department and two operating departments,Machinery and Milling.Costs of Custodial Services are allocated to the other departments on the basis of square footage of space occupied.The amount of space occupied by each department is given below: Budgeted costs in Custodial Services amount to $86,400.The amount of Custodial Services cost allocated to Maintenance under the step-down method would be:
A)$5,184
B)$5,400
C)$0
D)$5,760

Question

Rich Company has a Custodial Services department which services the company's Maintenance department and two operating departments,Machinery and Milling.Costs of Custodial Services are allocated to the other departments on the basis of square footage of space occupied.The amount of space occupied by each department is given below:  Budgeted costs in Custodial Services amount to $86,400.The amount of Custodial Services cost allocated to Maintenance under the step-down method would be:
A)$5,184 
B)$5,400 
C)$0 
D)$5,760

Quizplus · Accepted Answer

Allocation rate for Custodial services costs = Cost to be allocated F1F1F1S1F1F1F10 Allocation base
= $86,400 F1F1F1S1F1F1F10 (9,000 square feet + 45,000 square feet + 90,000 square feet)=$0.60 per square foot
Custodial services department cost allocated to Maintenance = $0.60 per square foot F1F1F1S1F1F1F10 9,000 square feet = $5,400

Rich Company Has a Custodial Services Department Which Services the Company's