Clopton Clinic uses the step-down method to allocate service department costs to operating departments. The clinic has two service departments, Personnel and Information Technology (IT), and two operating departments, Family Medicine and Geriatric Medicine. Data concerning those departments follow: Personnel costs are allocated first on the basis of employees and IT costs are allocated second on the basis of PCs.
-In the first step of the allocation, the amount of Personnel Department cost allocated to the Family Medicine Department is closest to:
A) $20,285
B) $17,929
C) $18,560
D) $39,774

Question

Clopton Clinic uses the step-down method to allocate service department costs to operating departments. The clinic has two service departments, Personnel and Information Technology (IT), and two operating departments, Family Medicine and Geriatric Medicine. Data concerning those departments follow:  Personnel costs are allocated first on the basis of employees and IT costs are allocated second on the basis of PCs.
-In the first step of the allocation, the amount of Personnel Department cost allocated to the Family Medicine Department is closest to:
A) $20,285 
B) $17,929 
C) $18,560 
D) $39,774

Quizplus · Accepted Answer

To allocate the Personnel Department costs to the operating departments, we use the number of employees in each operating department. The total number of employees in both operating departments is 35. Therefore, the percentage of employees in the Family Medicine Department is 20/35 or 57.14%. 
So, Personnel Department cost allocated to the Family Medicine Department is $32,500 x 57.14% = $18,560 (rounded to the nearest dollar).

Clopton Clinic Uses the Step-Down Method to Allocate Service Department