Cope, Inc. has the following costs and usage data for its support departments: Percent of Support Services Provided to
Direct Support Departments Operating Departments
Costs A B C 1 2
Services Provided By:
A $50,000 ---- 20% 10% 40% 30%
B 60,000 20% ---- 20% 20% 40%
C 30,000 10% 10% ---- 50% 30%
If the step-down method is used, and the order of allocation is department B first, then A, and finally C, the amount of support department A costs allocated to operating department 2 will be:
A)$15,000
B)$23,250
C)$24,000
D)$18,600

Question

Quizplus · Accepted Answer

The step-down method allocates costs in a sequential manner, with the department that provides the most services being allocated costs first, followed by the department that provides the next most services, and so on. In this case, support department B provides services to both support department A and operating department 1, so it will be allocated costs first.

Allocating B's costs:
B provides 20% of its services to itself = $12,000
B provides 20% of its services to A = $12,000 x 20% = $2,400
B provides 20% of its services to C = $12,000 x 20% = $2,400
B provides 40% of its services to operating department 1 = $12,000 x 40% = $4,800

The total cost allocated to B is $21,600.

Allocating A's costs:
A provides 10% of its services to itself = $5,000
A provides 40% of its services to operating department 1 = $50,000 x 40% = $20,000
A provides 10% of its services to C = $30,000 x 10% = $3,000

However, we have already allocated some of A's costs through department B's allocation. B provides 20% of its services to A, so $2,400 of B's $21,600 allocation represents A's costs. Therefore, we only need to allocate the remaining $18,600 of A's costs.

Allocating C's costs:
C provides 50% of its services to operating department 1 = $30,000 x 50% = $15,000
C provides 30% of its services to itself = $9,000
C provides 10% of its services to A = $30,000 x 10% = $3,000

Now we can determine the total cost allocated to operating department 2:

Operating department 2 uses 30% of A's services, or $15,000 x 30% = $4,500 of A's costs
Operating department 2 uses 20% of B's services, or $12,000 x 20% = $2,400 of B's costs
Operating department 2 uses 10% of C's services, or $30,000 x 10% = $3,000 of C's costs

The total support costs allocated to operating department 2 is $10,900. However, we only need to report the amount of support department A costs allocated to operating department 2, which is $4,500. Therefore, the answer is B) $23,250.

Cope, Inc Has the Following Costs and Usage Data for Its