Caro Manufacturing has two production departments, Machining and Assembly, and two service departments, Maintenance and Cafeteria. Direct costs for each department and the proportion of service costs used by the various departments for the month of August follow: Proportion of Services Used by Department Direct Costs Maintenance Cafeteria Machining Assembly Machining $ 140,000 Assembly 71,000 Maintenance 51,000 — 0.2 0.6 0.2 Cafeteria 36,000 0.6 — 0.2 0.2 Required: Use the step method to allocate the service costs, using the following: a. The order of allocation starts with Maintenance. b. The allocations are made in the reverse order (starting with Cafeteria).
Caro Manufacturing has two production departments, Machining and Assembly, and two service departments, Maintenance and Cafeteria. Direct costs for each department and the proportion of service costs used by the various departments for the month of August follow:
| Proportion of Services Used by | |||||||||||
| Department | Direct Costs | Maintenance | Cafeteria | Machining | Assembly | ||||||
| Machining | $ | 140,000 | |||||||||
| Assembly | 71,000 | ||||||||||
| Maintenance | 51,000 | — | 0.2 | 0.6 | 0.2 | ||||||
| Cafeteria | 36,000 | 0.6 | — | 0.2 | 0.2 | ||||||
Required:
Use the step method to allocate the service costs, using the following:
a. The order of allocation starts with Maintenance.
b. The allocations are made in the reverse order (starting with Cafeteria).
In the given Question, they have specifically asked to solve the Question by using Step Down Method of allocation of Cost.
STEP DOWN METHOD :
It is a method in which allocation of service cost is done using a sequential order. And once the cost of a Service Department is allocated to the Production departments, no other cost will be allocated to that particular Service Department.
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