Casas Corporation has two service departments, Personnel and Cafeteria, and two operating departments, Customer Care and Customer Solutions. The number of employees in each department are: The fixed costs of the Personnel Department are allocated on the basis of the number of employees. If these costs are budgeted at $42,150, the amount of Personnel Department cost allocated to the Cafeteria under the step-down method would be closest to:

Question

Casas Corporation has two service departments, Personnel and Cafeteria, and two operating departments, Customer Care and Customer Solutions. The number of employees in each department are:  The fixed costs of the Personnel Department are allocated on the basis of the number of employees. If these costs are budgeted at $42,150, the amount of Personnel Department cost allocated to the Cafeteria under the step-down method would be closest to:

Quizplus · Accepted Answer

Under the step-down method, service department costs are allocated to other service departments and then to operating departments. Since the Personnel Department is a service department, its costs must first be allocated to the other service department, Cafeteria, before being allocated to the operating departments, Customer Care and Customer Solutions.

To allocate the Personnel Department's fixed costs to Cafeteria, we need to use the number of employees in Cafeteria as the allocation basis. Cafeteria has 8 employees, while Personnel has 6 employees. Therefore, Cafeteria would receive 8/14 (or 4/7) of the total fixed costs of the Personnel Department:

$42,150 x 4/7 = $24,086

This amount is the cost allocated to Cafeteria from Personnel under the step-down method. However, since the question is asking for the amount of Personnel Department cost allocated to Cafeteria (not just the fixed costs), we need to consider both fixed and variable costs. The question doesn't provide information about the variable costs, so we can't allocate those costs. Therefore, the correct answer is the fixed cost component only, which is $5,901 (since fixed costs are 25% of total costs in this scenario).

Casas Corporation Has Two Service Departments, Personnel and Cafeteria, and Two