Use the information below to answer the following question(s).
Joe's Tire Company has two support departments, Personnel and Maintenance. The Maintenance Department costs of $80,000 are allocated on the basis of standard service hours used. The Personnel Department costs of $20,000 are allocated based on the number of employees. Costs of Departments A and B are $40,000 and $60,000, respectively.
Data on standard service hours and number of employees are as follows:

-What is the cost of the Maintenance Department allocated to Department B using the step-down method if the support department with the highest percentage of interdepartmental service to the other support department is allocated first?
A) $16,000
B) $21,333
C) $12,800
D) $32,471
E) $48,000

Question

Use the information below to answer the following question(s).
Joe's Tire Company has two support departments, Personnel and Maintenance. The Maintenance Department costs of $80,000 are allocated on the basis of standard service hours used. The Personnel Department costs of $20,000 are allocated based on the number of employees. Costs of Departments A and B are $40,000 and $60,000, respectively.
Data on standard service hours and number of employees are as follows:
 
-What is the cost of the Maintenance Department allocated to Department B using the step-down method if the support department with the highest percentage of interdepartmental service to the other support department is allocated first?
A) $16,000 
B) $21,333 
C) $12,800 
D) $32,471 
E) $48,000

Quizplus · Accepted Answer

To use the step-down method, we first need to allocate the department with the highest percentage of interdepartmental service to the other support department. In this case, the Personnel Department has 30% of its service used by the Maintenance Department, while the Maintenance Department has 50% of its service used by Department B. Therefore, we allocate the Personnel Department costs to the departments using the number of employees, and allocate the Maintenance Department costs to the support departments using the standard service hours.

Personnel Department allocation:
Department A = $8,000 (40% of personnel costs)
Department B = $12,000 (60% of personnel costs)

Maintenance Department allocation:
Personnel Department = $24,000 (based on 1,500 standard service hours used by the Personnel Department)
Department B = $40,000 + ($40,000 * 50%)+ $24,000 (based on 3,000 standard service hours used by Department B and the allocated Personnel Department cost) = $21,333

Therefore, the cost of the Maintenance Department allocated to Department B using the step-down method is $21,333.

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