Hanung Corp has two service departments, Maintenance and Personnel. Maintenance

Question

Hanung Corp has two service departments, Maintenance and Personnel. Maintenance Department costs of 3360,000 are allocated on the basis of budgeted maintenance-hours. Personnel Department costs of $110,000 are allocated based on the number of employees. The costs of operating departments A and B are $188,000 and $282,000, respectively. Data on budgeted maintenance-hours and number of employees are as follows Production Departments Support Departments Maintenance Department Department Personnel $360,000 NA $110,000 $188,000 $282,000 Budgeted costs Budgeted maintenance -hours 870 1220 660 60 NA 280 660 unber of ermplovees Using the step-down method, what amount of Maintenance Department cost will be allocated to Department B if the service department with the highest percentage of interdepartmental support service is allocated first? (Round up) $25,226 $50,038 $82,556 $33,835

Explanation / Answer

As per the Step down method,

The allocation of Maintenance department will be done first as this department has the highest percentage of interdepartmental support service.

Allocated cost to Dept B = 360,000 * 660 / (870 + 1220 + 660) = $86,400

(seems like this option is not there, but it is the correct way of calculation, please let me know in case of any issues)

As per direct method of cost allocation, the cost of service department will NOT be allocated to another service department. So, the cost will be directly allocated to Production departments as per appropriate proportions.

So, using direct method,

Maintenance cost allocated to Dept B = 380,000 * 600 / (1250 + 600) = $123,243

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