Sanchez Company has two service departments,Maintenance and Human Resources.Sanchez Company also has two production departments,Mixing and Finishing.Maintenance costs are allocated based on square footage while Human Resources costs are allocated based on number of employees.The following information has been gathered for the current year:
$\begin{array}{llll}&&\text { Human }\
&\text { Maintenlance }&\text { Resources } & \text { Mixing } & \text { Finishing } \
\text { Direct costs }&\$ 126,000 & \$ 84,000 & \$ 105,000 & \$ 175,000 \
\text { Square footage }&800 & 400 & 1,600 & 1,200 \
\text { Number of employees }&8 & 12 & 24 & 32
\end{array}$
Assume the step-down method is used to allocate service department costs and the Maintenance Department is allocated first.What are the total costs of the Mixing Department after the allocation of service department costs?
A) $210,750
B) $275,500
C) $277,000
D) $279,250

Question

Quizplus · Accepted Answer

The Maintenance Department costs are allocated first based on square footage. The Mixing Department has 1,600 square feet, which is 1,600/2,400 = 2/3 of the total square footage. Therefore, the Mixing Department is allocated 2/3 of the Maintenance Department costs, which is $126,000 * 2/3 = $84,000.The Human Resources Department costs are allocated next based on number of employees. The Mixing Department has 24 employees, which is 24/68 = 3/8 of the total number of employees. Therefore, the Mixing Department is allocated 3/8 of the Human Resources Department costs, which is $84,000 * 3/8 = $31,500.The total costs of the Mixing Department after the allocation of service department costs are $105,000 (direct costs) + $84,000 (Maintenance Department costs) + $31,500 (Human Resources Department costs) = $220,500.

Sanchez Company Has Two Service Departments,Maintenance and Human Resources Assume the Step-Down Method Is Used to Allocate Service Department