Madison Park Co-op, a whole foods grocery and gift shop, has provided the follow
ID: 2523873 • Letter: M
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 Gi Gifts Departmental costs before 0000 60,000 $3,860000 s 340,000 $190,000 60,000 allocations Employee-hours Space occupied-square feet 450 800 1,0002,690 9,200 330 180 800 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. (Please enter allocations from a department as negative and allocations to a department as positive. The line should add across to zero. Do not round intermediate calculations. Round your answers to the nearest dollar amount.) Service Departments Operating Departments Groceries Administration Janitorial Gifts Total 60,000 S 3,860,00034,000 4,450,000 Departmental costs before allocations S190,000S Allocation: Administration costs Janitorial costs Total costs after allocationExplanation / Answer
In the step down method the costs are also allocated to other service departments. The total cost of the other service department increases by the allocation and then this increased is allocated. We start with administration cost. This will be allocated to Janitorial, Groceries and Gifts. It is allocated based on employee-hours. Total employee-hours are 330+2690+180 = 3200 hrs
Total allocation to Janitorial = 190000/3200*330= 19593.75
Total allocation to Groceries = 190000/3200*2690 = 159718.75
Total allocation to Gifts = 190000/3200*180 =10687.5
Next we allocate Janitorial costs. Once the cost of any service department are allocated, then no cost is again allocated to that department. The cost is allocated to other remaining service departments. In this case there are no remaining service departments and so the Janitorial cost would be allocated to only Groceries and Gifts.
Total Cost of Janitorial is now = 60000+19593.75(alloted) = 79593.75, it is to be allocated on the space occupied.
Total Space occupied for Groceries and Gifts = 9200+800 = 10000 sq feet
Cost allocated to Groceries = 79593.75/10000*9200 = 73226.25
Cost allocated to Gifts = 79593.75/10000*800 = 6367.5
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