Treasures Corporation has two service departments (Human Resources and Marketing) and two production departments (Machining and Assembly). The company allocates Marketing cost on the basis of square footage and believes that Marketing provides more service than Human Resources. The square footage occupied by each department follows. $\begin{array} { l r }
\text { Human Resources } & 8,000 \
\text { Marketing } & 22,000 \
\text { Machining } & 12,000 \
\text { Assembly } & 40,000
\end{array}$ Assuming use of the step-down method, over how many square feet would the Marketing cost be allocated?

Question

Treasures Corporation has two service departments (Human Resources and Marketing) and two production departments (Machining and Assembly). The company allocates Marketing cost on the basis of square footage and believes that Marketing provides more service than Human Resources. The square footage occupied by each department follows. $\begin{array} { l r } 
\text { Human Resources } & 8,000 \
\text { Marketing } & 22,000 \
\text { Machining } & 12,000 \
\text { Assembly } & 40,000
\end{array}$ Assuming use of the step-down method, over how many square feet would the Marketing cost be allocated?

Quizplus · Accepted Answer

The step-down method allocates costs from the service department providing the most service first. Marketing costs are allocated over the square footage of Machining and Assembly, totaling 52,000 square feet (12,000 + 40,000), plus its own 22,000 square feet, totaling 60,000 square feet.

Treasures Corporation Has Two Service Departments (Human Resources and Marketing)