Seymore Company has two service departments (Cafeteria and Human Resources) and two production departments (Machining and Assembly). The number of employees in each department follows. $$\begin{array} { l r }
\text { Cafeteria } & 20 \
\text { Human Resources } & 30 \
\text { Machining } & 100 \
\text { Assembly } & 150
\end{array}$$ Seymore uses the step-down method of cost allocation and allocates cost on the basis of employees. Human Resources cost amounts to $1,200,000, and the department provides more service to the firm than Cafeteria. How much Human Resources cost would be allocated to Cafeteria?
A) $88,888.
B) $28,572.
C) $44,444.
D) $0.
E) None of the other answers are correct.

Question

Seymore Company has two service departments (Cafeteria and Human Resources) and two production departments (Machining and Assembly). The number of employees in each department follows. $$\begin{array} { l r } 
\text { Cafeteria } & 20 \
\text { Human Resources } & 30 \
\text { Machining } & 100 \
\text { Assembly } & 150
\end{array}$$ Seymore uses the step-down method of cost allocation and allocates cost on the basis of employees. Human Resources cost amounts to $1,200,000, and the department provides more service to the firm than Cafeteria. How much Human Resources cost would be allocated to Cafeteria?
A) $88,888.
B) $28,572.
C) $44,444.
D) $0.
E) None of the other answers are correct.

Quizplus · Accepted Answer

The step-down method allocates costs starting with the service department that provides the most service. Human Resources allocates its costs first. The allocation to Cafeteria is based on the proportion of employees: (20 / (20 + 100 + 150)) * $1,200,000 = $88,888.

Seymore Company Has Two Service Departments (Cafeteria and Human Resources)