Zoopsia Hospital has two service departments and three operating departments. Selected information on the five departments for last year is as follows: Zoopsia allocates Power Generation cost first on the basis of kilowatt hours. Zoopsia then allocates Laundry cost on the basis of the number of employees. Operating costs in Power Generation for last year were $250,000. Operating costs in Laundry for last year were $60,000. No distinction is made between variable and fixed costs.
-If service department costs are allocated using the step-down method, how much service cost will remain in the Power Generation department after allocation?
A) $0
B) $6,750
C) $12,375
D) $12,500

Question

Zoopsia Hospital has two service departments and three operating departments. Selected information on the five departments for last year is as follows:  Zoopsia allocates Power Generation cost first on the basis of kilowatt hours. Zoopsia then allocates Laundry cost on the basis of the number of employees. Operating costs in Power Generation for last year were $250,000. Operating costs in Laundry for last year were $60,000. No distinction is made between variable and fixed costs.
-If service department costs are allocated using the step-down method, how much service cost will remain in the Power Generation department after allocation?
A) $0 
B) $6,750 
C) $12,375 
D) $12,500

Quizplus · Accepted Answer

In the step-down method, service department costs are allocated to other departments, including other service departments, in a sequential manner. The Power Generation department's costs would be fully allocated to other departments, leaving $0 remaining.

Zoopsia Hospital Has Two Service Departments and Three Operating Departments