Quezaire Corporation, a manufacturer, uses the step-down method to allocate service department costs to operating departments. The company has two service departments, Administration and Facilities, and two operating departments, Assembly and Finishing. Data concerning those departments follow: Administration Department costs are allocated first on the basis of labor hours and Facilities Department costs are allocated second on the basis of space occupied.
-The total Finishing Department cost after allocations is closest to:
A) $528,859
B) $525,110
C) $528,790
D) $519,190

Question

Quezaire Corporation, a manufacturer, uses the step-down method to allocate service department costs to operating departments. The company has two service departments, Administration and Facilities, and two operating departments, Assembly and Finishing. Data concerning those departments follow:  Administration Department costs are allocated first on the basis of labor hours and Facilities Department costs are allocated second on the basis of space occupied.
-The total Finishing Department cost after allocations is closest to:
A) $528,859 
B) $525,110 
C) $528,790 
D) $519,190

Quizplus · Accepted Answer

To use the step-down method, we first allocate the Administration Department costs based on labor hours.

Administration Department cost allocated to Assembly = $150,000 x (1,500 / 3,000) = $75,000
Administration Department cost allocated to Finishing = $150,000 x (1,500 / 3,000) = $75,000

Then, we allocate the Facilities Department costs based on space occupied.

Facilities Department cost allocated to Assembly = ($200,000 + $75,000) x (20,000 / 60,000) = $75,000
Facilities Department cost allocated to Finishing = ($200,000 + $75,000) x (40,000 / 60,000) = $200,000

Total cost allocated to Finishing = $75,000 + $200,000 = $275,000.

Therefore, the closest answer is C) $528,790.

Quezaire Corporation, a Manufacturer, Uses the Step-Down Method to Allocate