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 A using the step-down method if the Personnel Department is allocated first?
A) $8,000
B) $4,706
C) $5,000
D) $12,000
E) $14,118

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 A using the step-down method if the Personnel Department is allocated first?
A) $8,000 
B) $4,706 
C) $5,000 
D) $12,000 
E) $14,118

Quizplus · Accepted Answer

Using the step-down method and allocating the Personnel Department costs first, we allocate $10,000 to each department based on the number of employees. Then, we allocate the Maintenance Department costs based on standard service hours used.

For Department A, 4,000 standard service hours are used which is 20% of the total standard service hours used by all departments (20,000/100,000). Therefore, the Maintenance Department costs allocated to Department A are:

20% of $80,000 = $16,000

However, we have already allocated $10,000 from the Personnel Department to Department A. Therefore, the net amount allocated to Department A from the Maintenance Department is:

$16,000 - $10,294 = $5,706 (rounded to the nearest dollar)

Adding this to the $40,000 allocated to Department A from the other departments, we get:

$40,000 + $5,706 = $45,706

So the correct answer is B) $4,706 (rounded to the nearest dollar)

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