Exclude the 5% from systems to maintenance. Since the question states the step down method and maintenance is listed first, support costs are allocated from maintenance to systems but not from systems to maintenance. You will need to calculate new proportions to allocate from systems to the operating depts.
Example: the proportion from systems to machining is 45% of 100%, but since the 5% from systems to maintenance is not relevant for allocations using this method the 45% must be converted to the proportion that 45% is of 95%(the total of % relevant for allocation).
45% / 95% = 47.368% to allocate costs from systems to machining
Also remember that the systems costs will include OH + the costs allocated to systems from maintenance(total costs to allocate from systems to operating depts is 131,000 in this case; 10% of maintenance costs + 95k in OH). The answer should be $442,053
Hope this helps!
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Jennifer Albright
Student
Willow Creek CA
United States
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Original Message:
Sent: 05-30-2023 06:08 AM
From: SARUN SIMON
Subject: PART 1 - SECTION D - Allocation of Service Department Cost -
Adam Corporation manufactures computer tables and has the following budgeted indirect manufacturing cost information for next year.
| | Support Departments | Operating Departments | Total |
| | Maintenance | Systems | Machining | Fabrication | |
| Budgeted | | | | | |
| overhead | $360,000 | $95,000 | $200,000 | $300,000 | $955,000 |
| Support work furnished | | | | | |
| From Maintenance | | 10% | 50% | 40% | 100% |
| From System | 5% | | 45% | 50% | 100% |
If Adam uses the step-down method, beginning with the Maintenance Department, to allocate support department costs to production departments, the total overhead (rounded to the nearest dollar) for the Machining Department to allocate to its products would be
$415,526.
$422,750.
$442,053
$445,000
Hi Everyone,
Would you please explain how to solve it?
WITH REGARDS,
SARUN PORATHUR SIMON