Molten Works Ltd provides the following information about departmental consumption of allocation bases for its 3 support and 2 operating departments. $$\begin{array} { | l | c | c | c | c | c | }
\hline & { \text { Support Departments } } &&& { \text { Operating Departments } } \
\hline & \text { Persennel } & \text { Cafeteria } & \text { Maintenance } & \text { Machining } & \text { Assenbly } \
\hline \text { Maintenance } & & 10 \% & 20 \% & 30 \% & 40 \% \
\hline \text { Cafeteria } & 10 \% & & 20 \% & 40 \% & 30 \% \
\hline \text { Personnel } & 10 \% & 20 \% & & 50 \% & 20 \% \
\hline
\end{array}$$ For the step-down method, what proportion of the Maintenance Department's costs will be allocated to the Assembly Department if the allocation order is Personnel, Cafeteria and Maintenance?
A) 60%
B)40%
C) 57.1%
D) 42.9%

Question

Molten Works Ltd provides the following information about departmental consumption of allocation bases for its 3 support and 2 operating departments. $$\begin{array} { | l | c | c | c | c | c | } 
\hline & { \text { Support Departments } } &&& { \text { Operating Departments } } \
\hline & \text { Persennel } & \text { Cafeteria } & \text { Maintenance } & \text { Machining } & \text { Assenbly } \
\hline \text { Maintenance } & & 10 \% & 20 \% & 30 \% & 40 \% \
\hline \text { Cafeteria } & 10 \% & & 20 \% & 40 \% & 30 \% \
\hline \text { Personnel } & 10 \% & 20 \% & & 50 \% & 20 \% \
\hline
\end{array}$$ For the step-down method, what proportion of the Maintenance Department's costs will be allocated to the Assembly Department if the allocation order is Personnel, Cafeteria and Maintenance?
A) 60%
B)40%
C) 57.1%
D) 42.9%

Quizplus · Accepted Answer

The step-down method allocates support department costs to other departments based on the specified order and percentages. Following the order Personnel → Cafeteria → Maintenance, we first allocate Personnel costs, then Cafeteria costs (which now include allocated Personnel costs), and finally Maintenance costs (which include allocated costs from both Personnel and Cafeteria). For the Maintenance Department, initially, 40% of its costs are allocated to the Assembly Department. However, the Assembly Department also receives allocations from the Cafeteria, which includes its own costs plus a portion of the Personnel costs. The Cafeteria's allocation to Assembly is 30%, but this includes 10% of Personnel costs and, after Personnel allocation, 20% of its own costs to Maintenance. Therefore, when allocating Maintenance costs, the Assembly Department receives not just the original 40% of Maintenance costs but also an additional portion due to the step-down allocations from Personnel and Cafeteria. The exact calculation involves adjusting for the increased base of the Maintenance costs due to the inclusion of allocated costs from Personnel and Cafeteria, leading to a final proportion higher than the original 40% but not as straightforward as simply adding percentages. The correct calculation involves determining the effective percentage after considering the interdepartmental allocations and the impact of the step-down sequence, resulting in 57.1%.

Molten Works Ltd Provides the Following Information About Departmental Consumption