The accountant for Milton, Inc. is preparing the budgets for operating departmen

Question

The accountant for Milton, Inc. is preparing the budgets for operating department support service costs. Maintenance costs are allocated based on square feet, and cafeteria costs are allocated based on number of employees. The following data have been collected:

Support Departments          Operating Departments

  Maintenance       Cafeteria   Cutting     Packaging

Direct costs                          $50,000 $45,000 $275,000      $300,000

Number of employees                   15                 10               150               250

Square feet                               1,500 2,000            3,500            4,000

If the step-down method is used and maintenance is allocated first, maintenance costs allocated to cafeteria will be

Explanation / Answer

Total square feet =11,000 (1,500 + 2,000 + 3,500 + 4,000)

Total number of employees = 425 (15 + 10 + 150 + 250)

Maintenance is allocated using square feet.

Cafeteria is allocated using Number of employees.

Maintenance provides 2,000 / (11,000-1,500) or 0.21052 of its services to cafeteria.

So, Maintenance cost allocated to cafeteria = 0.21052 * 50,000 = $10,526.

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