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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

ekkarill92 answered 2 years ago
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