Question

Allocation: Direct Method and Step down Method

Please show work

Required:

1) Allocate the personnel and engineering costs to the production departments using the direct method

2) Allocate the personnel and engineering costs to the production departments using the step down method

-company has Two production departments:

processing

assembly

-company also has Two service departments:

personnel

engineering

Company budget for August 2014 is:

Service departments:

Personnel:

direct costs is 64,000

square feet 4,000

# of employees 30

Engineering:

direct costs 140,000

square feet 2000

# of employees 60

Production:

Processing:

direct costs 1,200,000

Square feet 20,000

# of employees 400

Assembly:

direct costs 1,600,000

square feet 50,000

# of employees 500

the firm allocates their personnel costs based on:

# of employees

and

engineering costs based on square feet

column1 personnel

column 2 engineering

column 3 processing

column 4 assembly

Row 1 direct costs

Row 2 square feet

Row 3 # of employees

Answer 1

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Direct Method	Personnel	Engineering	Processing	Assembly	Total
Direct Costs	64,000.00	140,000.00	1,200,000.00	1,600,000.00	3,004,000.00
Square Feet	4,000.00	2,000.00	20,000.00	50,000.00	76,000.00
No. of employees	30.00	60.00	400.00	500.00	990.00
Allocation
Personnel cost (400:500)	(64,000.00)	-	28,444.44	35,555.56	-
Engineering cost (20000:50000)	-	(140,000.00)	40,000.00	100,000.00	-
Total costs	-	-	1,268,444.44	1,735,555.56	3,004,000.00
Step Down Method	Personnel	Engineering	Processing	Assembly	Total
Direct Costs	64,000.00	140,000.00	1,200,000.00	1,600,000.00	3,004,000.00
Square Feet	4,000.00	2,000.00	20,000.00	50,000.00	76,000.00
No. of employees	30.00	60.00	400.00	500.00	990.00
Allocation
Engineering cost (4000:20000:50000)	7,567.57	(140,000.00)	37,837.84	94,594.59	-
Total	71,567.57	-	1,237,837.84	1,694,594.59	3,004,000.00
Personnel cost (400:500)	(71,567.57)	-	31,807.81	39,759.76	-
Total costs	-	-	1,269,645.65	1,734,354.35	3,004,000.00
Note: As per step down method, service department which has more costs will be allocated first so Engineering department is allocated first.