Question

Murray Hill was preparing the monthly report that allocates the three service department’s ( A, B, and C) costs to the three operating divisions ( D1, D2, and D3) when he choked to death on a stale double cream- filled donut. You must step in and complete his step- down allocations. The three service departments (A, B, and C) have costs (before any cost allocation) of:
Service Department Service Department’s Own Cost
A.............. $ 600,000
B .............. 300,000
C .............. 200,000
The following table provides the percentage of utilization of each service department by the other service departments and the operating departments:


The step- down sequence is A, B, then C. Poor Murray allocated only A’s costs before the donut did him in. His incomplete spreadsheet is:


Required:
a. Do Murray proud and complete the incomplete spreadsheet. Like Murray, round all cost allocations to the nearest dollar.
b. If the company wants the cost allocations to most accurately capture the opportunity cost of resources consumed by the operating divisions, how should the service departments be ordered in the step- downmethod?


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  • CreatedDecember 15, 2014
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