Question

1. Stone, Inc., budgets the following amounts for its Buildings & Grounds and Computer Services Departments in servicing each other and the two manufacturing divisions of Signs and Mailers:

   	Used By
   Supplied By	Building & Grounds	Computer Services	Signs	Mailers
   Buildings & Grounds	—	0.20	0.60	0.20
   Computer Services	0.15	—	0.30	0.55

   If you are using the step down method to allocate support department costs which department(s) would you allocate the costs from first:

   	a.	Mailers and Signs
   	b.	Building and Grounds and Computer Services
   	c.	Building and Grounds
   	d.	Computer Services

Answer 1

Answer is c. Building and Grounds

Explanation:

In case of step method of overhead cost allocation the service or support department which renders highest amount of service to other service department will be allocated first. The service of Buildings and grounds is used Computer services 20% and service of computer services used by building and ground is 15%. Hence Buildings and ground is giving more service to computer services. So Buildings and ground overheads cost will be allocated first in step method of overhead allocation. Mailers and signs are production departments and hence not the answer.