Hilton Hamlet Corp. has an Advertising Department and a Human Resources Department that provide service to three store locations. The Human Resources Department cost is allocated on the basis of employees, and the Advertising Department cost is allocated on the basis of space. The following information is available: $\begin{array} { l r r r r r }
& \begin{array} { c }
\text { Human } \
\text { Resources }
\end{array} & \text { Advertising } & \text { Store \#1 } & \text { Store \#2 } & \text { Store \#3 } \
\text { Budgeted Cost } & \$ 30,000 & \$ 15,000 & & & \
\begin{array} { l }
\text { Space in Square }
\end{array} & 2,000 & 500 & 10,000 & 33,000 & 40,000 \
\text { feet } & \
\text { Number of } & 10 & 5 & 20 & 50 & 35\
\text { Employees } & & & & & \
\end{array}$ Using the step-down method and assuming that Human Resources cost is allocated first, the amount of Human Resources cost allocated to Store # 3 is:

Question

Hilton Hamlet Corp. has an Advertising Department and a Human Resources Department that provide service to three store locations. The Human Resources Department cost is allocated on the basis of employees, and the Advertising Department cost is allocated on the basis of space. The following information is available: $\begin{array} { l r r r r r } 
& \begin{array} { c } 
\text { Human } \
\text { Resources }
\end{array} & \text { Advertising } & \text { Store \#1 } & \text { Store \#2 } & \text { Store \#3 } \
\text { Budgeted Cost } & \$ 30,000 & \$ 15,000 & & & \
\begin{array} { l } 
\text { Space in Square }
\end{array} & 2,000 & 500 & 10,000 & 33,000 & 40,000 \
\text { feet } &  \
\text { Number of } & 10 & 5 & 20 & 50 & 35\
\text { Employees } &  & & & & \
\end{array}$ Using the step-down method and assuming that Human Resources cost is allocated first, the amount of Human Resources cost allocated to Store # 3 is:

Quizplus · Accepted Answer

Using the step-down method, the Human Resources Department cost is allocated first. Since Store #3 has the most number of employees, all 10 employees are initially allocated to Store #3. This brings the Human Resources Department cost to $18,000 [(10/115) x $30,000].

Next, the Advertising Department cost is allocated. Since Store #3 has the most space, all 500 sq ft is initially allocated to Store #3. This brings the Advertising Department cost to $10,714 [(500/43,500) x $15,000].

To complete the allocation, we need to allocate the remaining employee and space amounts to the stores. The revised allocation rates are $156.52 per employee and $292.68 per sq ft of space. The final allocation for Store #3 is:

Human Resources: $1,565.22 ($156.52 x 10)
Advertising: $8,979.55 ($292.68 x 30,500 sq ft)
Total: $10,544.77

Rounding to the nearest dollar gives us an answer of $9,545, which is option C.

Hilton Hamlet Corp Using the Step-Down Method and Assuming That Human Resources Cost