Valdez Company has two service departments,Maintenance and Personnel.Valdez 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 Maintenance Department is allocated first.What amount of costs would be allocated from the Maintenance Department to the Personnel Department?
A)$0
B)$5,040
C)$6,300
D)$16,800

Question

Valdez Company has two service departments,Maintenance and Personnel.Valdez 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 Maintenance Department is allocated first.What amount of costs would be allocated from the Maintenance Department to the Personnel Department?
A)$0 
B)$5,040 
C)$6,300 
D)$16,800

Quizplus · Accepted Answer

According to the step-down method, service department costs are allocated to other service departments and then to production departments. Since the Maintenance Department is allocated first, all of its costs will be allocated to the Personnel and Mixing departments.

Maintenance costs: $42,000

Allocation of Maintenance costs based on square footage: 
Personnel Department: 5,000 / 15,000 x $42,000 = $14,000 
Mixing Department: 10,000 / 15,000 x $42,000 = $28,000

Total Maintenance costs allocated: $42,000

Since Personnel costs are only allocated to the Personnel Department, there will be no allocation from the Maintenance Department to the Personnel Department.

Therefore, the amount of costs allocated from the Maintenance Department to the Personnel Department is $0. The correct answer is A.

Valdez Company Has Two Service Departments,Maintenance and Personnel