Williams 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: $\begin{array}{lllll}
&\text { Maintenance }&\text { Personnel }&\text { Mixing }&\text { Finishing }\
\text { Direct dept.costs }&\$126,000&\$105,000&\$175,000&\$84,000\
\text { Square footage } & 800 & 400 & 1,600 & 1,200 \
\text { Number of employees } &8 & 12 & 24 & 32
\end{array}$ If the step- down method is used to allocate costs and the Maintenance Department is allocated first, then the amount of overhead that would be allocated from Maintenance to Finishing is:

Question

Quizplus · Accepted Answer

The Maintenance Department costs are allocated based on square footage. The total square footage is 4,000 (800 + 400 + 1,600 + 1,200). The Finishing Department has 1,200 square feet. The allocation to Finishing is calculated as: ($126,000 * 1,200) / 4,000 = $37,800. However, since the Maintenance Department is allocated first, the Personnel Department's square footage must also be considered. The correct allocation is: ($126,000 * 1,200) / (1,600 + 1,200) = $47,250.

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