Question

Williams manufactures a variety of iron products, made to customer specifications, in small batches. Willie Williams, owner, is concerned that he does not have an accurate understanding of the costs of production. You, a newly-minted MBA, have researched his business and identified various costs and cost drivers. Janitorial Welding HR Data Svcs Assembly TotalOwn costs $12,000 $90,000 $37,200 $32,400 $54,000 $225,600Square feet 500 3,000 1,500 2,000 4,500 11,500# employees 7 25 8 10 75 125# transactions (thou)30 100 180 600 140 1,050Power usage 22 730 11 17 220 1,000If the step-down method is used in this case, which sequence of allocations is not valid?The service departments (Janitorial, HR, and Data Services) are allocated to the two production departments (Welding and Assembly). Janitorial costs are allocated using square feet, HR using number of employees, and Data Services using number of transactions. You recall that there are several approaches to the allocation of service department costs, direct, step-down and reciprocal methods.(A) Data, Janitorial, HR(B) HR, Data, Janitorial(C) Data, HR, Janitorial(C) Janitorial, Welding, HR, Data Svcs, Assembly(D) All sequences above are acceptable

Answer 1

Answer:

(C) Janitorial, Welding, HR, Data Svcs, Assembly

Explanation:

Question: If the step-down method is used in this case, which sequence of allocations is not valid?

The step method will allocate a portion of a service department to others service department cost thus, increasing the cost of these.

In this case cost from Janitorialo will go into HR and Data serivces.

Is important to understand that these method have as goal to allocate their cost into production department. The production department receive cost from the service department. They do not allocate into service. Never.

Having said that statement; the conclusion is that option C is incorrect as it is doing a distribution of produciton department into service department.