Question

"what amount of warehouse department cost will be allocated to department music if the service department with the highest percentage"

Answer 1

Complete Question:

Goldfarb's Book and Music Store has two service departments, Warehouse and Data Center. Warehouse Department costs of $310,000 are allocated on the basis of budgeted warehouse -hours. Data Center Department costs of $100,000 are allocated based on the number of computer log-on hours. The costs of operating departments Music and Books are $102,500 and $123,000, respectively. Data on budgeted warehouse-hours and number of computer log-on hours are as follows: Production Departments Support Departments Warehouse Data Center Department Department Music Books Budgeted costs Budgeted warehouse-hours Number of computer hours $310,000 NA 270 $100,000 520 NA $102,50 0 1080 900 $123,00 0 1590 1020 Using the step-down method, what amount of Warehouse Department cost will be allocated to Department Music if the service department with the highest percentage of interdepartmental support service is allocated first? (Do not round any intermediate calculations.) A) $34,702 B) $125,393 C) $33,856 D) $104,953

Answer:

Goldfarb's Book and Music Store

Amount of warehouse department cost allocated to department music is:

D) $104,953

Explanation:

a) Data and Calculations:

                                       Support Departments      Production Departments

                                      Warehouse   Data Center      Music        Books

Budgeted costs                $310,000      $100,000     $102,500   $123,000

Budgeted warehouse-hours  NA             520              1,080           1,590

Number of computer hours    270           NA                 900            1,020

b) Allocation of Warehouse costs:

Basis for allocation is budgeted warehouse hours:

Data Center = 520

Music =         1,080

Books =        1,590

Total hours  3,190

Allocation of Warehouse cost to Music:

1,080/3,190 * $310,000 = $104,953

b) The step-down method for allocating the manufacturing overheads of service departments to the production departments involves first allocating one service department's cost to the production departments and other service departments in a step-down manner.  After all service departments' costs have been so allocated, there is some re-allocation which then eliminates the costs of some departments.  This continues until all service departments' costs are allocated.  It is unlike the direct method which allocates one service department costs without allocating them to another service department.