Question

Sarah’s Book and Tea Boutique has 2 Service Departments, Warehouse and Data Centre. Warehouse Department costs...

Sarah’s Book and Tea Boutique has 2 Service Departments, Warehouse and Data Centre.

  • Warehouse Department costs of $175,000 are allocated on the basis of budgeted warehouse-hours.
  • Data Centre Department costs of $75,000 are allocated based on the number of computer log-on hours.
  • The costs of Operating Departments Music and Books are $125,000 and $150,000, respectively. Data on budgeted warehouse-hours and number of computer log-on hours are as follows:

Support Departments

Production Departments

Warehouse Department

Data Centre Department

Tea

Books

Budgeted costs

$175,000

$75,000

$125,000

$150,000

Budgeted warehouse-hours

NA

250

500

750

Number of computer hours

100

NA

400

500

Required:

  1. Using the Step-Down method, what amount of Warehouse Department cost will be allocated to Tea, if the service department with the highest percentage of interdepartmental support service is allocated 1st? (Round up)    (3 marks)

Warehouse

Data Centre

Tea

Books

TOTALS
  1. Using the Step-Down method, what amount of Data Centre Department cost will be allocated to Tea, if the service department with the highest percentage of interdepartmental support service is allocated 1st? (Round up)           

Warehouse

Data Centre

Tea

Books

TOTALS
Business   Accounting   
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Homework Answers

Answer #1

Answer :

(a) Amount of Warehouse Department cost will be allocated to Tea = $ 58333

Warehouse Data centre Tea Books
Budgeted cost $ 175000 $ 75000 $ 125000 $ 150000
Warehouse department cost allocated (250 ; 500 : 750) $ (175000) $ 29167 $ 58333 $ 87500

(b) amount of Data Centre Department cost will be allocated to Tea = $ 46296

Warehouse Data centre Tea Books
Budgeted cost $ 175000 $ 75000 $ 125000 $ 150000
Warehouse department cost allocated (250 ; 500 : 750) $ (175000) $ 29167 $ 58333 $ 87500
Total - $ 104167 $ 183333 $ 237500
Data centre cost allocated ( 400 : 500) $ (104167) $ 46296 $ 57871
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