The managers at Ithaca Manufacturing are discussing ways to allocate the cost of support departments such as Quality Control and Maintenance to the operating departments. To aid them in this discussion, the controller has provided the following information: Support Operating
Quality Maint-
Control enance Machining Assembly Total
Budgeted overhead costs
Before allocation $350,000 $200,000 $400,000 $300,000 $1,250,000
Budgeted machine hours 50,000 50,000
Budgeted direct labour hours 25,000 25,000
Budgeted hours of service:
Quality control 7,000 21,000 7,000 35,000
Maintenance 10,000 18,000 12,000 40,000
(CMA)If Ithaca Manufacturing uses the step-down method of allocating support costs beginning with quality control, the maintenance costs allocated to the Assembly Department would be:
A)$70,000
B)$108,000
C)$162,000
D)$200,000

Question

Quizplus · Accepted Answer

Using the step-down method, we first allocate the costs of Quality Control to the operating departments based on their respective usage of Quality Control services.

- Machining: (7,000/35,000) x $350,000 = $70,000
- Assembly: (21,000/35,000) x $350,000 = $210,000

Next, we allocate the costs of Maintenance to the operating departments based on their respective usage of both Quality Control and Maintenance services.

- Machining: (10,000/50,000) x [$200,000 + ($70,000 x 25,000/50,000)] = $86,000
- Assembly: (18,000/50,000) x [$200,000 + ($210,000 x 21,000/35,000) + ($70,000 x 25,000/50,000)] = $108,000

Therefore, the allocated Maintenance costs to Assembly Department would be $108,000.

The Managers at Ithaca Manufacturing Are Discussing Ways to Allocate