Alphabet Inc. has a manufacturing plant with three service departments (A, B and C) and a single operating department (D). Following are the hours of service (measured in direct labor hours) expected to be provided by A, B and C for this year.
Estimated Service Provided To
Dept. A Dept. B Dept. C Dept. D Totals
Service Dept. A —- 750 750 1,500 3,000
Service Dept. B 600 —- 1,200 200 2,000
Service Dept. C 1,200 1,800 —- 1,000 4,000
Support department costs are:
Department A $ 8,500
Department B $15,000
Department C $ 7,500
Department D $ 9,000
- Under the step-down method, using the most popular sequence, which service departments’ costs will be allocated first, second, and third?
- Carry out the step-down method of allocating the service department costs. (Show all the steps; Round all allocations to the nearest dollar).
- Write the linear equations you would need to reflect the relationships among the various service departments using the reciprocal method of allocating service department costs.
- Under the step-down method, using the most popular sequence, which service departments’ costs will be allocated first, second, and third?
A to other service departments : (750+750)/3,000 = .50
B to other service departments : (600+1,200)/2,000 = .90
C to other service departments : (1,200+1,800)/4,000 = .75
The sequence is B, C, A
- Carry out the step-down method of allocating the service department costs. (Show all the steps; Round all allocations to the nearest dollar).
| B | C | A | D | |
| Costs | $15,000 | $7,500 | $8,500 | $9,000 |
| Allocate B
(1,200/2,000; 600/2,000; 200/2,000) |
(15,000) |
9,000 |
4,500 |
1,500 |
| Allocate C
(1,200/2,200; 1,000/2,200) |
|
(16,500) |
9,000 |
7,500 |
| Allocate A | (22,000) | 22,000 | ||
| Totals | -0- | -0- | -0- | 40,000 |
- Write the linear equations you would need to reflect the relationships among the various service departments using the reciprocal method of allocating service department costs.
A = $8,500 + .3B + .3C *
B = $15,000 + .25A + .45C **
C = $7,500 + .25A + .6B ***
* 600/2,000 = .30; 1,200/4,000 = .30
**750/3,000 = .25; 1,800/4,000 = .45
***750/3,000 = .25; 1,200/2,000 = .60
