Watts Corporation has a Custodial Services Department that services the company's Maintenance Department and its two operating departments. Costs of the Custodial Services Department are allocated to other departments on the basis of square feet of space occupied. The amount of space occupied by each department is given below: Budgeted costs in the Custodial Services Department total $43,200.Suppose the company uses the step-down method of allocation and the costs of the Custodial Services Department are allocated first. The amount of Custodial Services Department cost allocated to the Maintenance Department would be:
A) $2,592
B) $2,700
C) $2,880
D) $0

Question

Watts Corporation has a Custodial Services Department that services the company's Maintenance Department and its two operating departments. Costs of the Custodial Services Department are allocated to other departments on the basis of square feet of space occupied. The amount of space occupied by each department is given below:  Budgeted costs in the Custodial Services Department total $43,200.Suppose the company uses the step-down method of allocation and the costs of the Custodial Services Department are allocated first. The amount of Custodial Services Department cost allocated to the Maintenance Department would be:
A) $2,592 
B) $2,700 
C) $2,880 
D) $0

Quizplus · Accepted Answer

To allocate the costs of the Custodial Services Department using the step-down method, we first allocate the costs to the department that uses the least amount of custodial services - in this case, the Maintenance Department.

The amount of custodial service cost allocated to the Maintenance Department is therefore:

($43,200 / 10,800 sq. ft.) x 2,700 sq. ft. = $10,800

Next, we allocate the remaining custodial services cost to the two operating departments, based on their respective square footage.

The amount of custodial service cost allocated to the Maintenance Department is therefore:

($43,200 - $10,800) / (2,700 sq. ft. + 3,600 sq. ft.) x 3,600 sq. ft. = $32,400 / 6,300 sq. ft. x 3,600 sq. ft. = $18,857.14 rounded to nearest whole number = $18,857

Therefore, the amount of Custodial Services Department cost allocated to the Maintenance Department would be $10,800, or choice letter B.

Watts Corporation Has a Custodial Services Department That Services the Company's