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Homework answers / question archive / Question 10: a) You are presented with the following support department information: Service provider and allocation base Support departments Manufacturing lines Department A Department B Department C Line 1 Line 2 Department A (number of jobs) 100 300 200 250 350 Department B (number of employees) None None 20 500 500 Department C (number of jobs) 25 80 None 300 420 Support department costs are as follows: Department A: $1,100,000 Department B: $504,000 Department C: $760,000 Task Allocate support department costs to Manufacturing line 1 and Manufacturing line 2 using the step-down method
Question 10:
a) You are presented with the following support department information:
|
Service provider and allocation base |
Support departments |
Manufacturing lines |
|
Department A |
Department B |
Department C |
Line 1 |
Line 2 |
|
|
Department A (number of jobs) |
100 |
300 |
200 |
250 |
350 |
|
Department B (number of employees) |
None |
None |
20 |
500 |
500 |
|
Department C (number of jobs) |
25 |
80 |
None |
300 |
420 |
|
Support department costs are as follows: |
|
Department A: |
$1,100,000 |
|
Department B: |
$504,000 |
|
Department C: |
$760,000 |
Task
Allocate support department costs to Manufacturing line 1 and Manufacturing line 2 using the step-down method.
Answer:-
To Allocate support department costs to Manufacturing line 1 and Manufacturing line 2 using the step-down method:
Given:
Cost of support departments :
department A = $1100,000
department B = $504,000
department C = $760,000
department A provides the highest serivice.
So cost of department A is allocated first.
Allocation of department A cost:
Allocation ratio :
department B = 300/(300+200+250+350) = 300/1100 = 3/11
department c = 200/(300+200+250+350) = 200/1100 = 2/11
manufacturing line 1 = 250/(300+200+250+350) = 250/1100 = 25/110 = 5/22
manufacturing line 2 = 350/(300+200+250+350) = 350/1100 = 35/110 = 7/22
Allocated to :
department B = 1100,000 x 3/11 = 300,000
department C = 1100,000 x 2/11 = 200,000
manufacturing line 1 = 1100,000 x 5/22 = 250,000
manufacturing line 2 = 1100,000 x 7/22 = 350,000
after allocation of department A cost, now we need to allocate other serivice department cost
Service department cost of department B = $504,000 + cost allocated from department A = 504000+300,000 = 804000.
service department cost of department C = 760,000 + cost allocated from department A = 760,000 + 200,000 = 960,000.
Allocating department C cost:
Allocation ratio:
department B = 80/(80+300+420) = 80/800 = 1/10
manufacturing line 1 = 300/(80+300+420) = 300/800 = 3/8
manufacturing line 2 = 420/(80+300+420) = 420/800 = 21/40
Allocated to :
department B = 960,000 x 1/10 = 96000
manufacturing line 1 = 960,000 x 3/8 = 360,000
manufacturing line 2 = 960,000/21/40 = 504,000
Note: no cost is allocated to department A as cost of department A is already allocated.
lastly, we need to allocated cost of department B
cost of department B that need to be allocated = $504,000 + cost allocated from department A + cost allocated from department C = 504000+300,000+96000 = 900,000
Allocation of department B cost:
Allocation ratio :
manufacturing line 1 = 500/(500+500) = 500/1000 = 1/2
manufacturing line 2 = 500/(500+500) = 500/1000 = 1/2
Allocated to :
manufacturing line 1 = 900,000 x 1/2 = 450,000
manufacturing line 2 = 900,000 x 1/2 = 450,000
Note: no cost is allocated to department A and department C as their costs are already allocated.
Therefore, total service department cost allocated to manufacturing line 1 = service cost allocated from department A + service cost allocated from department C + service cost allocated from department B = 250,000 + 360,000 + 450,000 = $1060,000
total service department cost allocated to manufacturing line 2 = service cost allocated from department A + service cost allocated from department C + service cost allocated from department B = 350,000 + 504000+450,000 = $1304,000
