2. Stomp-rite Inc. makes hiking boots. The company operates with two processing

Question

2. Stomp-rite Inc. makes hiking boots. The company operates with two processing departments: the cutting department and the assembly department. The human resources and maintenance departments support the processing departments. Budgeted costs for the support departments for the period are as follows Human resources Maintenance Salaries and wages Direct costs Depreciation Total $105,000 $14,000 24,000 32,000 70,000 15,000 30,000 Costs are allocated to the processing departments based on the following activity levels: Human Supplied by Human resources (employees) Maintenance (square metres) resources Maintenance Cutting Assembly 175 15 2,000 25 3,000 200 10,000 40,000 Using the step-down method, beginning with human resources, how much of the total support department costs should be allocated to assembly? a) $125,038 b) $129,770 c) $135,282 d) $138,500

Explanation / Answer

Using step down method, allocation of support department costs to Processing departments Department Support Processing Human Resources Maintenance Cutting Assembly Costs $150,000.00 $70,000.00 Allocation of Human resource department cost [25:175:200] -$150,000.00 $9,375.00 $65,625.00 $75,000.00 Allocation of Maintenance department cost [10000:40000] -$79,375.00 $15,875.00 $63,500.00 Allocated Cost $0.00 $0.00 $81,500.00 $138,500.00 The total support department costs allocated to assembly = $138,500.00 The answer is Option d.

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