Question

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 Departments Operating Departments
Administration Janitorial Groceries Gifts
Departmental costs before allocations $200,000       $50,000      $3,850,000    $330,000    
Employee-hours          470             330              2,720             150    
Space occupied square feet          900              1,100            9,100           900  

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 1

Madison Park Co-op

Allocation of Departmental Costs:

Service Departments Operating Departments

Administration Janitorial Groceries Gifts

Departmental costs

before allocations $200,000 $50,000 $3,850,000 $330,000

Administration -200,000 206,250 1,700,000 93,750

Janitorial -256,250 242,857 13,393

Total costs 0 0 $5,792,857 $437,143

Step-by-step explanation:

a) Data and Calculations:

Service Departments Operating Departments

Administration Janitorial Groceries Gifts

Departmental costs

before allocations $200,000 $50,000 $3,850,000 $330,000

Employee-hours 470 330 2,720 150

Space occupied

square feet 900 1,100 9,100 900

Administration costs:

Janitorial = $200,000 * 330/3,200 = $206,250

Groceries = $200,000 * 2,720/3,200 = $1,700,000

Gifts = $200,000 * 150/3,200 = $93,750

Janitorial costs:

Groceries = $256,250 * 2,720/2,870 = $242,857

Gifts = $256,250 * 150/2,870 = $13,393