Question

Cooper Ltd manufactures home security devices. The firm has two production departments: the Fabrication Department and the Assembly Department. The firm also has three support departments: the Engineering Department, the Information Technology Department, and the Purchasing Department. The usage of these three support departments’ output for 2018 was as follows:

	User of Services
	Support departments			Production departments
Provider of Services	Engineering	Information Technology	Purchasing	Fabrication		Assembly
Engineering	0%	0%	0%	40%		60%
Information Technology	25%	0%	10%	25%		40%
Purchasing	8%	7%	0%	45%		40%

The budgeted department costs in 2018 were as follows:

Support Departments:
Engineering	£300,000
Information Technology	£250,000
Purchasing	£250,000
	£800,000
Production Departments:
Fabrication	£625,000
Assembly	£78,000
	£703,000
Total Overhead Costs	£1,503,000

Use the step-down method to allocate the budgeted costs of the Engineering Department, Information Technology Department and Purchasing Department to the Fabrication Department and the Assembly Department.

Answer 1

Provider of Services	Fabrication	Assembly
Engineering (300,000 x 40/100), (300,000 x 60/100)	120,000	180,000
Information Technology (250,000 x 25/65), (250,000 x 40/65)	96,154	153,846
Purchasing (250,000 x 45/85), (250,000 x 40/85)	132,353	117,647