County Company has two service departments, Maintenance and Personnel, as well as two production departments, Mixing and Finishing. Maintenance costs are allocated based on square footage, while personnel costs are allocated based on number of employees. The following information has been gathered for the current year:

-If the step-down method is used to allocate costs, and the Maintenance Department renders the greatest service, then the total amount of overhead that would be allocated from Personnel to Finishing is
A) $24,429.
B) $18,000.
C) $32,571.
D) $27,000.

Question

County Company has two service departments, Maintenance and Personnel, as well as two production departments, Mixing and Finishing. Maintenance costs are allocated based on square footage, while personnel costs are allocated based on number of employees. The following information has been gathered for the current year:
 
-If the step-down method is used to allocate costs, and the Maintenance Department renders the greatest service, then the total amount of overhead that would be allocated from Personnel to Finishing is
A) $24,429. 
B) $18,000. 
C) $32,571. 
D) $27,000.

Quizplus · Accepted Answer

To allocate costs using the step-down method, first, we need to allocate the costs from the Maintenance department to the other departments:

- Mixing department: 40% of $24,000 = $9,600
- Finishing department: 60% of $24,000 = $14,400

Next, we need to allocate the costs from the Personnel department to the other departments, but we have to take into account the costs already allocated from the Maintenance department:

- Mixing department: ($10,000 + $9,600) / 4 = $4,650
- Finishing department: ($14,000 + $14,400) / 6 = $4,900

Therefore, the total amount of overhead that would be allocated from Personnel to Finishing is:

$9,800 + $4,900 = $14,700

Hence, the correct answer is C) $32,571.

County Company Has Two Service Departments, Maintenance and Personnel, as Well