St. Payne Med Center is using the step-down method to allocate costs. They have

Question

St. Payne Med Center is using the step-down method to allocate costs. They have two support departments (Record Keeping and Cleaning), and two patient service departments (Eye Care and Dental Care). Some of the Record Keeping costs are allocated to Cleaning before the support department costs are allocated to patient service departments. Record Keeping costs are allocated based on the number of employees, while Cleaning costs are allocated by the number or rooms. The following data has been collected:

Support Departments Patient Revenue Departments

Record Keeping Cleaning Eye Care Dental Care

Department Costs $ 13,000 $10,000 $32,000 $60,000

Number of Employees 2 4 3 6

Number of Rooms 1 1 2 3

a. What amount of the Record Keeping is allocated to Cleaning? $

b. What amount of the Record Keeping is allocated to Eye Care? $

c. What amount of the Record Keeping is allocated to Dental Care?

d. What amount of the Cleaning is allocated to Eye Care? $

e. What amount of the Cleaning is allocated to Dental Care? $

f. After Allocation, What are Eye Care’s total costs? $

g. After Allocation, What are Dental Care’s total costs?

Explanation / Answer

a. amount of the Record Keeping is allocated to Cleaning = 13000 * 4 /13 = $4000

b. amount of the Record Keeping is allocated to Eye Care= 13000 * 3 /13 = $3000

c. amount of the Record Keeping is allocated to Dental Care= 13000 * 6 /13 = $6000

d. amount of the Cleaning is allocated to Eye Care = (10000 + 4000) * 2 / 5 = $5600

e. amount of the Cleaning is allocated to Dental Care = (10000 + 4000) * 3 / 5 = $8400

f. After Allocation, Eye Care’s total costs = $32000 + $5600 = $37600

g. After Allocation, Dental Care’s total costs = $60000 + $8400 = $68400

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