Fundamentals of Cost Accounting 3rd Edition by William N. Lanen, Shannon W. Anderson, Michael Maher

Exercise 25

Cost Allocation: Step Method

Refer to the data for Warren Ltd. in Exercise 11-22.

Required

Use the step method to allocate the service costs, using the following:

a.The order of allocation starts with Maintenance.

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b.The allocations are made in the reverse order (starting with Cafeteria).

Step 1 of 3

Step – Down Allocation Method:

Step – Down Allocation Method is one of the allocation methods which allocate the costs of service department to service department and other departments. In this method of allocation portion of costs of service department is allocated to other service department. While allocating costs, first preference should be given service department and next to production department.