Costs in the Personnel Department total $900,000 per year. Under the step-down method, the costs of the Personnel Department are allocated before the costs of the Engineering Department are allocated. The amount of this cost allocated to the Engineering Department under the step-down method is closest to:

Question

Quizplus · Accepted Answer

To allocate the costs using the step-down method, we need to choose a sequence in which the departments allocate costs to each other. In this case, we are told to allocate the costs of the Personnel Department before allocating the costs of the Engineering Department.

Step 1: Allocate the costs of the Personnel Department to itself. This is straightforward since all $900,000 of costs are incurred by the Personnel Department itself.

Step 2: Allocate the costs of the Personnel Department to the Engineering Department, using the given percentages. We are told that 40% of the Personnel Department's costs are due to the Engineering Department, so we allocate $360,000 to the Engineering Department.

Step 3: Allocate the remaining costs of the Engineering Department to itself. Since the Engineering Department has no other costs besides those allocated to it from the Personnel Department, we don't need to allocate anything else.

Therefore, the amount of cost allocated to the Engineering Department under the step-down method is $360,000, or choice C.

Costs in the Personnel Department Total $900,000 Per Year