(Appendix 4B) Anchor Corporation has two service departments, Personnel and Engineering, and two operating departments. The costs of the Personnel Department are allocated to other departments on the basis of the number of employees in the departments. Departments and number of employees are as follows:
Costs in the Personnel Department total $168,283 per year.
-Suppose the company uses the step-down method and Personnel Department costs are allocated first.The amount of the Personnel Department cost allocated to the Engineering Department would be closest to:
A) $16,828
B) $17,714
C) $0
D) $112,189

Question

(Appendix 4B) Anchor Corporation has two service departments, Personnel and Engineering, and two operating departments. The costs of the Personnel Department are allocated to other departments on the basis of the number of employees in the departments. Departments and number of employees are as follows:
  Costs in the Personnel Department total $168,283 per year.
-Suppose the company uses the step-down method and Personnel Department costs are allocated first.The amount of the Personnel Department cost allocated to the Engineering Department would be closest to:
A) $16,828 
B) $17,714 
C) $0 
D) $112,189

Quizplus · Accepted Answer

Allocation base for Personnel Department costs = 20 + 75 + 95 = 190
Personnel Department cost allocated to the Engineering Department = $168,283 × (20/190) = $17,714

(Appendix 4B) Anchor Corporation Has Two Service Departments, Personnel and Engineering