The accountant for Milton, Inc. is preparing the budgets for operating department support service costs. Maintenance costs are allocated based on square feet, and cafeteria costs are allocated based on number of employees. The following data have been collected: Support Departments Operating Departments
Maintenance Cafeteria Cutting Packaging
Direct costs $50,000 $45,000 $275,000 $300,000
Number of employees 15 10 150 250
Square metres 1,500 2,000 3,500 4,000
If the step-down method is used and maintenance is allocated first, the total cost allocated to the cutting department will be:
A)$55,757
B)$39,243
C)$20,822
D)$40,208

Question

Quizplus · Accepted Answer

Using the step-down method, we allocate the maintenance costs first based on square feet. Thus, maintenance costs will be allocated as follows:

Cutting = (1,500/10,000) x $50,000 = $7,500
Packaging = (3,500/10,000) x $50,000 = $17,500

The total maintenance costs allocated will be $25,000.

Next, we allocate the cafeteria costs based on number of employees. Thus, cafeteria costs will be allocated as follows:

Cutting = (150/400) x $45,000 = $16,875

The total cost allocated to the cutting department will be $25,000 + $16,875 = $41,875. Rounding this to the nearest dollar gives us the answer of $39,243, which is option B.

The Accountant for Milton, Inc