Question
In: Accounting
Goldfarb's Book and Music Store has two service departments, Warehouse and Data Center. Warehouse Department costs...
Goldfarb's Book and Music Store has two service departments, Warehouse and Data Center. Warehouse Department costs of $370,000 are allocated on the basis of budgeted warehouse-hours. Data Center Department costs of $180,000 are allocated based on the number of computer log-on hours. The costs of operating departments Music and Books are $137,500 and $165,000, respectively. Data on budgeted warehouse-hours and number of computer log-on hours are as follows:
Production
Support
Departments Departments
|
Warehouse Department |
Data Center Department |
Music |
Books |
|
|
Budgeted costs |
$370,000 |
$180,000 |
$137,500 |
$165,000 |
|
Budgeted warehouse-hours |
NA |
500 |
1050 |
1520 |
|
Number of computer hours |
210 |
NA |
900 |
1040 |
Using the step-down method, what amount of Warehouse Department cost will be allocated to the Books Department if the Data Center department is allocated first? (Do not round any intermediary calculations).
| a. |
$229,231 |
|
| b. |
$75,349 |
|
| c. |
$96,495 |
|
| d. |
$370,000 |
Solutions
Expert Solution
Answer :
| a. |
$229,231 |
Calculated as
| Step down approach | Warehouse Department | Data Center Department | Music | Books | Total |
| Overhead befor allocations | $ 370,000 | $ 180,000 | $ 137,500 | $ 165,000 | $ 852,500 |
| Allocation of utilities cost first | $ 17,581.40 | $ (180,000) | $ 75,349 | $ 87,070 | $ - |
| Allocation of Utilities cost | $ (387,581) | $ - | $ 158,350 | $ 229,231 | $ - |
| Total allocated cost | $ (0) | $ - | $ 371,199 | $ 481,301 | $ 852,500 |
| Allocation of Data centre cost | Warehouse Department | Music | Books | Total | |
| Ratio to distribute cost | 210 | 900 | 1040 | 2150 | |
| . | =180000*210/2150 | =180000*900/2150 | =180000*1040/2150 | ||
| 17581.39535 | 75348.83721 | 87069.76744 | 180000 | ||
| Allocation of Maintenance cost | Music | Books | Total | ||
| Ratio to distribute cost | 1050 | 1520 | 2570 | ||
| allocation of cost | =387581.40*1050/2570 | =387581.40*1520/2570 | |||
| 158350 | 229231 | 387581 |
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