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.
-The total Geriatric Medicine Department cost after allocations is closest to:
A) $113,020
B) $134,101
C) $139,700
D) $139,601

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.
-The total Geriatric Medicine Department cost after allocations is closest to:
A) $113,020 
B) $134,101 
C) $139,700 
D) $139,601

Quizplus · Accepted Answer

First, personnel costs are allocated based on the number of employees in each department.

Family Medicine has 8 employees and Geriatric Medicine has 6 employees, so:

Personnel cost allocation to Family Medicine = $58,500 x (8/14) = $33,429
Personnel cost allocation to Geriatric Medicine = $58,500 x (6/14) = $25,071

Next, IT costs are allocated based on the number of PCs in each department.

Family Medicine has 24 PCs and Geriatric Medicine has 30 PCs, so:

IT cost allocation to Family Medicine = $24,000 x (24/54) = $10,667
IT cost allocation to Geriatric Medicine = $24,000 x (30/54) = $13,333

Adding all the allocations together, we get:

Total cost of Family Medicine = $33,429 + $10,667 = $44,096
Total cost of Geriatric Medicine = $25,071 + $13,333 = $38,404

Therefore, the closest answer choice is C) $139,700.

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