Sharon Manufacturing
The Sharon Manufacturing Company has two service departments and two producing departments. The following data are available for 2013.
$\begin{array}{lcccc}
& \text { Service } & \text { Service } & \text { Producing } & \text { Producing } \
& \text { Dept. 1 } & \text { Dept. 2 } & \text { 1 } & \text { 2 } \
\hline \text { Department Costs } & \$ 20000 & \$ 12000 & \$ 80000 & \$ 90000 \
\text { Machine hours } & 12000 & 8000 & 12000 & 60000 \
\text { Square Feet Occupied } & 3000 & 3000 & 9000 & 6000
\end{array}$

The costs of service departments 1 and 2 are allocated on the basis of machine hours and square feet occupied, respectively. Total overheads from producing departments are allocated to products on the basis of direct labour hours, which are 5000 in Producing Department 1 and 2000 hours in Producing Department 2. Service department 1 is allocated first.
-Assuming that Sharon Manufacturing Company allocates service department 1 costs first,the amount of service department 2 costs allocated to producing department 1 under the step-down method would be:

Question

Sharon Manufacturing
The Sharon Manufacturing Company has two service departments and two producing departments. The following data are available for 2013.
$\begin{array}{lcccc} 
& \text { Service } & \text { Service } & \text { Producing } & \text { Producing } \
& \text { Dept. 1 } & \text { Dept. 2 } & \text { 1 } & \text { 2 } \
\hline \text { Department Costs } & \$ 20000 & \$ 12000 & \$ 80000 & \$ 90000 \
\text { Machine hours } & 12000 & 8000 & 12000 & 60000 \
\text { Square Feet Occupied } & 3000 & 3000 & 9000 & 6000
\end{array}$
 
The costs of service departments 1 and 2 are allocated on the basis of machine hours and square feet occupied, respectively. Total overheads from producing departments are allocated to products on the basis of direct labour hours, which are 5000 in Producing Department 1 and 2000 hours in Producing Department 2. Service department 1 is allocated first.
-Assuming that Sharon Manufacturing Company allocates service department 1 costs first,the amount of service department 2 costs allocated to producing department 1 under the step-down method would be:

Quizplus · Accepted Answer

Under the step-down method, after allocating Service Department 1 costs based on machine hours, the costs of Service Department 2 are allocated based on square feet. The total square footage is 3000 (Service Dept. 1) + 3000 (Service Dept. 2) + 9000 (Producing Dept. 1) + 6000 (Producing Dept. 2) = 21000 square feet. Producing Department 1 occupies 9000/21000 of the total square footage. Therefore, the allocation of Service Department 2 costs ($12000) to Producing Department 1 is 9000/21000 * $12000 = $5142.86. However, since Service Department 1's costs are allocated first, its costs are also included in the base for allocating Service Department 2's costs. The correct calculation involves only the direct allocation of Service Department 2's costs based on the original square footage, leading to the correct allocation amount for Producing Department 1.

Sharon Manufacturing the Sharon Manufacturing Company Has Two Service Departments

Sharon Manufacturing
the Sharon Manufacturing Company Has Two Service Departments