Question

Marshall Welding Company has two service departments (Cafeteria and Human Resources) and two production departments (Machining and Assembly). The number of employees in each department follows.

cafeteria 20

human resources 30

machining 100

assembly 150

Marshall Welding uses the step-down method of cost allocation and allocates cost on the basis of employees. Human Resources cost amounts to $1,200,000, and the department provides more service to the firm than Cafeteria. How much Human Resources cost would be allocated to Cafeteria?

a. $88,888

b. $28,572

c. none of the answers is correct

d. $44,444

e. $0

Answer 1

solution:

 

OPTION A - $88,888 IS THE HUMAN RESOURCES COST WHICH WOULD BE ALLOCATED OT CAFETERIA

 

Explanation:

 

Calculation of Human Resources cost that would be allocated to Cafeteria:

          = $ 12,00,000 x (20/270)

          = $ 88,888

 

Working notes :

1.Human resources cost (Given)= $12,00,000

2.Number of employees in Cafeteria = 20 

3.Total number of employees from Human resources to departments 

                = 20 + 100 + 150

                = 270 Employees 

$88,888 IS THE HUMAN RESOURCES COST WHICH WOULD BE ALLOCATED TO CAFETERIA