Question

Bob Stone, Inc., budgets the following amounts for its Buildings & Grounds and Computer Services Departments in servicing each other and the two manufacturing divisions of Signs and Mailers:  

	Used By
Supplied By	Building & Grounds	Computer Services	Signs	Mailers
Buildings & Grounds	—	0.20	0.60	0.20
Computer Services	0.15	—	0.30	0.55

If you are using the step down method to allocate support department costs which of the support departments would you allocate the costs from second:

	a.	Computer Services
	b.	Building and Grounds
	c.	Mailers
	d.	Signs

Answer 1

Option B is correct.

ie building and grounds Dept.

Building and ground support deptt. Takes only 15% from computer and service support deptt. but gives the 20% to computer and service support deptt.

Whereas computer service deptt. Takes 20% from building and ground support deptt. But gives only 15% to building ground deptt.

It means that building and ground support deptt. Should be first allocated and thereafter computer service support deptt.because who incurred greatest cost should be allocated first.

Theory:

Step down method allocates service costs to the operating departments and other service departments in a sequential process. The sequence of allocation generally starts with the service department that has incurred the greatest costs. After this department’s costs have been allocated, the service department with the next highest costs has its costs allocated, and so forth until the service department with the lowest costs has had its costs allocated. Costs are not allocated back to a department that has already had all of its costs allocated.

Thanku