Westminster Manufacturing Company has two support activities and two line activities.The following data pertain to usage patterns for the support and line activities: $\begin{array}{lrrrr}&\text { Support Activities} &&\text { Line Activities }\\hline
&\text { Maintenance} &\text { human Resources} &\text { Activity A } &\text {Activity B }\\hline
\text { Costs } & \$ 40,000 & \$ 20,000 & \$ 100,000 & \$ 200,000 \
\text { Square Footage Used } & 300 & 400 & 1,000 & 3,000 \
\text { Number of Employees } & 10 & 20 & 100 & 150 \
\text { Direct Labor Hours } & & & 2,000 & 4,000
\end{array}$ The costs of Maintenance are allocated based on square footage used.Human Resources costs are allocated based on number of employees.Activity A and B costs are overhead costs with predetermined overhead rates computed based on direct labor hours.If the company uses the step-down method of allocating support activities to line activities and allocates the cost of Maintenance first, what amount of Human Resources costs will be allocated to Activity A?
A)$8,000
B)$9,454
C)$20,000
D)$4,545
E)None of the above.

Question

Quizplus · Accepted Answer

First, allocate Maintenance costs based on square footage: Total square footage = 300 (Maintenance) + 400 (Human Resources) + 1,000 (Activity A) + 3,000 (Activity B) = 4,700. Maintenance cost per square foot = $40,000 / 4,700. However, since we're focusing on Human Resources costs allocation, we need to adjust the base for allocating Human Resources costs after allocating Maintenance costs. Human Resources costs are allocated based on the number of employees. After allocating Maintenance costs, the remaining activities (including Human Resources itself, since it's the step-down method) will share the Human Resources costs. Total employees = 10 (Maintenance) + 20 (Human Resources) + 100 (Activity A) + 150 (Activity B) = 280. The Human Resources cost per employee = $20,000 / 280. Activity A has 100 employees, so the allocation to Activity A = (100 / 280) * $20,000 = $7,143. However, this calculation does not directly apply the step-down method's specifics regarding the sequential allocation and adjustment of bases after each step. The correct approach involves first removing the Maintenance cost influence before reallocating Human Resources costs. Given the choices provided and the need for a specific answer based on the step-down method, without the exact recalculated bases and allocations after the first step, the correct answer involves understanding the principle of allocating based on the number of employees directly, which seems to have been misunderstood in this explanation. The correct allocation should consider the direct impact of Human Resources costs on the activities based on the number of employees, directly applying the given data without needing to recalculate after the first allocation step. Therefore, the correct answer should reflect the direct allocation of Human Resources costs to Activity A based on the proportion of employees, which is not accurately captured in the provided explanation. Given the error in the calculation process and explanation, the correct answer intended to reflect the allocation of Human Resources costs directly to Activity A based on the number of employees would be different from the options provided, indicating a misunderstanding in applying the step-down method correctly.

Westminster Manufacturing Company Has Two Support Activities and Two Line