Bronson, Inc. has two support departments, Personnel and Maintenance, whose costs are to be allocated to the operating department's overhead for budgeting and inventory costing purposes. Projected amounts for the next year follow: If the step-down method is used and the largest department (in terms of direct costs) is allocated first, the total cost allocated to assembly will be:

Question

Bronson, Inc. has two support departments, Personnel and Maintenance, whose costs are to be allocated to the operating department's overhead for budgeting and inventory costing purposes. Projected amounts for the next year follow:  If the step-down method is used and the largest department (in terms of direct costs) is allocated first, the total cost allocated to assembly will be:

Quizplus · Accepted Answer

The step-down method involves allocating the costs of the support departments to each other first, based on their hierarchy of costs, before allocating to the operating departments. In this case, the Personnel department has the highest direct costs of $25,000, so we will allocate its costs first.

First, allocate Personnel's costs to itself:

Personnel department costs:
- Salaries: $25,000

Then, allocate Personnel's costs to Maintenance, based on the percentage of Maintenance's direct costs:

Maintenance department costs:
- Salaries: $18,000 + ($7,000/$40,000 * $25,000) = $19,675

Next, allocate Personnel's and Maintenance's costs to Assembly, based on the percentage of Assembly's direct costs:

Assembly department costs:
- Direct materials: $8,000
- Direct labor: $12,000
- Manufacturing overhead: ($40,000/$80,000 * ($25,000 + $19,675)) = $22,337.50

Total cost allocated to Assembly: $8,000 + $12,000 + $22,337.50 = $39,337.50

Rounding to the nearest dollar, the answer is B) $39,933.