Question

The Lots More Store has a Janitorial Department and a Personnel Department that provide services to three Sales Departments. The Janitorial Department cost is allocated based on space and the Personnel Department cost is allocated based on employees. The following information is available.

	Personnel	Janitorial	Sales	Sales	Sales
	Dept	Dept	#1	#2	#3
Budget	$45 000	$30 000
Space (sq m)	4 000	1 000	30 000	20 000	50 000
No. of Employees	5	10	15	45	30

Using the step-down method, calculate the amount of Janitorial Department cost allocated to Sales Department #2, if the Personnel Department is allocated first.

Select one:

a. 10 247

b. $6900

c. $8 571

d. $10 350

Answer 1

Answer:
Janitorial Department cost   - Allocation Base	Space
Personnel Department cost   - Allocation Base	Employees
	Personnel Department	Janitorial Department	Sales # 1	Sales # 2	Sales # 3
Budgeted Dept. Costs	45,000	30,000
Allocation of Personnel Department Costs (10 + 15 + 45 + 30 = 100 )	-45,000	$ 4,500 ( 45,000 x 10 / 100)	$ 6,750 ( 45,000 x 15 / 100)	$ 20,250 ( 45,000 x 45 / 100)	$ 13,500 ( 45,000 x 30 / 100)
Costs Before allocation of Janitorial Department	$ 0	$ 34,500	$ 6,750	$ 20,250	$ 13,500
Cost Allocation - Janitorial Department ( 30,000 + 20,000 + 50,000 ) = 30 : 20 : 50 = 100		($ 34,500)	$ 10.350 ( $ 34,500 x 30 /100 )	$ 6,900 ( $ 34,500 x 20 /100 )	$ 17,250 ( $ 34,500 x 50 /100 )
Amount of Janitorial Department cost allocated to Sales Department #2 =	$ 6,900
Option (b) is Correct