a Allocate support department cost using stepdown method 152

15-21step-down allocation. E-books, an online book retailer, has two operating departments- sales-and two support departments-human resources and information corporate sales and consumer systems. Each sales department conducts merchandising and marketing operations independently E-books uses number of employees to allocate human resources costs and processing time to allocate systems costs. The following data are available for September 2012 information Bis Home Insert Page Layout Formulas Data Review View SUPPORT OPERATING DEPARTMENTS Resources Systems S72.700 . S234.400 DEPARTMENTS Sales Sales S998.270$489.860 Human Information Corporate Consumer 2 3 Budgeted costs incurred before any 4 interdepartment cost allocations . Support work supplied by human 5 resources department 6Budgeted number of employees 21 42 28 Support work supplied by information 1,920 ,600 8 Budgeted processing time (n minutes)3201

Solution

Answer :

Steps to allocate budgated overhead under Step -down allocation is as follows :

Step-1 The service department that provides service to the largest number of other service departments or which has the largest percentage of its costs consumed by other service departments allocates its costs to them first

Step-2 The service department that provides service to the next-largest number of other service departments or which has the second-largest percentage of its costs consumed by other service departments allocates its costs. Again, its other costs are allocated to the operating departments at this time.

Step-3 The process continues until the service department that provides service to the smallest number of other service departments or has the smallest percentage of its costs consumed by other service departments has allocated its costs. Once these allocations have been completed, the process stops.

Allocation of overhead as per the above procedure under Step- Down Method :

Step -1 Computation of Percetage of service provided to other Department

Step -2 Allocation under Step- Down method :

We noted that as per the step -1 Human resources provides higher percentage of service to information system, hence we should first start allocating the human resources budgated amount to other three services and then start allocating information system overhead expenses.

End of the Answer

	Support Department	Operating Department	Total
Service Portion	Human Resources	Information System	Corporate Sales	Consumer Sales
Number of employees (in Numbers )	0	21	42	28	91
Emoployees Percentage	0	23%	46%	31%	100%
Budgated Processing Time	320	0	1920	1600	3840
Processing Time Percentage	8%	0%	50%	42%	100%