Murphy Company has two service departments,Maintenance and Personnel.Murphy Company also has two production departments,Mixing and Finishing.Maintenance costs are allocated based on square footage while personnel costs are allocated based on number of employees.The following information has been gathered for the current year: Assume the step-down method is used to allocate service department costs and the Personnel Department is allocated first.What is the amount of costs allocated from the Personnel Department to the Mixing Department?
A)$29,746
B)$31,500
C)$58,500
D)$63,000

Question

Murphy Company has two service departments,Maintenance and Personnel.Murphy Company also has two production departments,Mixing and Finishing.Maintenance costs are allocated based on square footage while personnel costs are allocated based on number of employees.The following information has been gathered for the current year:  Assume the step-down method is used to allocate service department costs and the Personnel Department is allocated first.What is the amount of costs allocated from the Personnel Department to the Mixing Department?
A)$29,746 
B)$31,500 
C)$58,500 
D)$63,000

Quizplus · Accepted Answer

To allocate service department costs using the step-down method, we need to allocate the costs from the Personnel Department to both production and service departments based on the number of employees. After that, we allocate the costs from the Maintenance Department to both production and service departments based on square footage.

Since the Personnel Department is allocated first, we allocate its costs to both production and service departments based on the number of employees. The total personnel costs are $126,000. The Mixing Department has 45 employees, while the Finishing Department has 55 employees. Therefore, the Personnel Department allocates:

Mixing Department allocation = (45/100) x $126,000 = $56,700

Finishing Department allocation = (55/100) x $126,000 = $69,300

Now we can allocate Maintenance Department costs. The total maintenance costs are $211,500. The square footage for the Mixing Department is 20,000 and the square footage for the Finishing Department is 30,000. Therefore, the Maintenance Department allocates:

Mixing Department allocation = (20,000/50,000) x $211,500 = $84,600

Finishing Department allocation = (30,000/50,000) x $211,500 = $126,900

Thus, the total costs allocated to the Mixing Department are:

Personnel Department allocation = $56,700
Maintenance Department allocation = $84,600
Total = $141,300

Therefore, the amount of costs allocated from the Personnel Department to the Mixing Department is $56,700. The correct answer is B.

Murphy Company Has Two Service Departments,Maintenance and Personnel