Petro-X uses the direct method for allocating both fixed and variable costs from the physical plant and equipment maintenance support departments to operating departments X and Y. The bases for allocation are as follows:

Physical plant:

Fixed costs on the basis of square feet occupied Variable costs on the basis of number of employees

Equipment maintenance:

Fixed costs on the basis of budgeted machine hours Variable costs on the basis of expected maintenance hours Costs for physical plant and equipment maintenance are:

Allocation bases for all four departments are:

REQUIRED

A. Assign the support department costs to departments X and Y using the direct method.

B. Assign the support department costs to departments X and Y using the step-down method with the physical plant costs allocated first.

C. Assign the support department costs to departments X and Y using the step-down method with equipment maintenance costs allocated first.

D. Under the step-down method, what criterion should be used to decide which support department costs to allocatefirst?

Transcribed Image Text:

Fixed costs Variable costs Physical Plant $39,000 $18,000 Equipment Maintenance $75,000 $60,000 Support Operating Equipment Physical Plant Maintenance Department X Department Y Square feet Number of employees Budgeted machine hours Budgeted maintenance hours 1,600 10 3,900 12 100 20 5,000 40 10,000 200 8,000 50 15,000 400 10