Question:
Petro-X uses the direct method for allocating both fixed and variable costs from the physical plant and equipment maintenance support departmens to operating departments X and Y. The bases for allocation are as follows:
Physical plant: Fixed costs on the basis of square feet occupied
variable costs on the basis of number of employees
Equipment maintenance: Fixed costs on the basis of budgeted machine hours
Variable costs on the basis of expected maintenance hours
Costs for physical plant and equipment maintenance are:
|
|
Physical equipment |
|
Equipment maintenance |
| Fixed costs |
$39,000 |
|
|
|
$75,000 |
|
| Variable costs |
$18,000 |
|
|
|
$60,000 |
|
Allocation bases for all four departments are:
|
|
|
Support |
|
Operating |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Physical plant |
Equip. Maintenance |
|
Department X |
|
Department Y |
| Square feet |
|
1,600 |
|
3,900 |
|
|
5,000 |
|
|
8,000 |
|
| Number of employees |
10 |
|
12 |
|
|
40 |
|
|
50 |
|
| Budgeted machine hours |
0 |
|
100 |
|
|
10,000 |
|
|
15,000 |
|
| Budgeted maintenance hours |
10 |
|
20 |
|
|
200 |
|
|
400 |
|
A. Assign the support department costs to departments X and Y using the direct method
B. Assign the support department costs to departments X and Y using the step-down method with the physical plant costs allocated first.
C. Assign the support department costs to departments X and Y using the step-down method with equipment maintenance costs allocated first.
D. Under the step-down method, what criterion should be used to decide which support department costs to allocate first?