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Step-Down Cost Allocation Example

The Madison Park Co-op grocery store allocated department costs using the step-down method. [1] Administration costs of $150,000 were first allocated to the operating departments based on employee hours, with $116,250 going to Groceries and $27,750 to Gifts. [2] Then the $40,000 costs of the Janitorial department were allocated based on space occupied, with $36,800 going to Groceries and $9,200 to Gifts. [3] This resulted in final allocated costs of $2,473,050 for Groceries and $986,950 for Gifts.

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34 views2 pages

Step-Down Cost Allocation Example

The Madison Park Co-op grocery store allocated department costs using the step-down method. [1] Administration costs of $150,000 were first allocated to the operating departments based on employee hours, with $116,250 going to Groceries and $27,750 to Gifts. [2] Then the $40,000 costs of the Janitorial department were allocated based on space occupied, with $36,800 going to Groceries and $9,200 to Gifts. [3] This resulted in final allocated costs of $2,473,050 for Groceries and $986,950 for Gifts.

Uploaded by

Michael
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Nama : Calvin Wijaya

Kelas : LA86
NIM : 2301854220
Subyek : Managerial Accounting

EXERCISE 6-5 Step-Down Method [LO4]


Madison Park Co-op, a whole foods grocery and gift shop, has provided the following data to be
used in its service department cost allocations:
Service Department Operating Department
Administration Janitorial Groceries Gifts
Departmental costs before $150.000 $40.000 $2.320.000 $950.000
allocations
Employee-hours 320 160 3.100 740
Space occupied-squeare 250 100 4.000 1.000
feet

Required:
Using the step-down method, allocate the costs of the service departments to the two
operating departments. Allocate Administration first on the basis of employee-hours and then
Janitorial on the basis of space occupied.

Answer:

Allocation of Department Administration Cost:

160 160 1
Department Janitorial= = =
160+3.100+740 4.000 25

3.10 0 310 31
Department Groceries= = =
160+ 3.100+ 740 4.000 40

74 0 740 37
Department Gifts= = =
160+3.100+740 4.000 2 00

1
Allocated ¿ Department Janitorial=150.000 x =6.000
25
31 0
Allocated ¿ Department Groceries=150.000 x =11 6. 25 0
40

37
Allocated ¿ Department Gifts=150.000 x =27.750
200

Allocation of Department Janitorial Cost:

Allocation Ratio:

4 . 0 00 4.000 4
Department Groceries= = =
(1.0 00+ 4 .00 0) 5 .000 5

1.000 1.000 1
Department Groceries= = =
(1.000+ 4.000) 5.000 5

Total Cost of Janitorial=$ 40.000+$ 6.000=$ 46.000

4
Allocated ¿ Department Groceries=$ 46 .000 x =$ 36.800
5

1
Allocated ¿ Department Gifts=$ 46.000 x =$ 9 .2 00
5

Service Department Operating Department


Administration Janitorial Groceries Gifts
Departmental costs $150.000 $40.000 $2.320.000 $950.000
before allocations
Allocation:
Administration costs -150.000 $6.000 $116.250 $27.750
Janitarial Costs -46.000 $36.800 $9.200
Total costs after $0 $0 $2.473.050 $986.950
allocations

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