Kevin Company has two service departments, Maintenance and Personnel, as well as two production departments, Mixing and Finishing.Maintenance costs are allocated based on square footage while personnel costs are allocated based on number of employees.The following information has been gathered for the current year: $\begin{array}{lrrrr}&\text { Maintenance}&\text { Personnel}&\text { Mixing }&\text {Finishing }\\hline
\text { Direct dept. costs } & \$ 126,000 & \$ 84,000 & \$ 105,000 & \$ 175,000 \
\text { Square footage } & 800 & 400 & 1,600 & 1,200 \
\text { Number of employees } & 8 & 12 & 24 & 32
\end{array}$ If the step-down method of allocating costs is used and the Personnel Department is allocated first, then the amount of overhead that would be allocated from Personnel to Finishing is _____.
A)$42,000
B)$72,000
C)$31,500
D)$105,000

Question

Quizplus · Accepted Answer

Personnel costs are allocated based on number of employees. Finishing has 32 employees, while Maintenance has 8, Personnel has 12, and Mixing has 24. So, Finishing should be allocated 32/76 of the Personnel costs, which is $84,000 * 32/76 = $42,000.

Kevin Company Has Two Service Departments, Maintenance and Personnel, as Well