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    Stepdown Accounting

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    The Danville Manufacturing Company has two service departments and two producing departments. The following data are available for 2006.

    Service Dept. 1 Service Dept. 2 Producing 1 Producing 2
    Department Costs $12,000 $8,000 $60,000 $70,000
    Number of Transactions 6,00 0 4,000 6,000 14,000
    Square Feet Occupied 2,000 1,000 4,000 6,000

    The costs of service departments 1 and 2 are allocated on the basis of the number of transactions and square feet occupied, respectively. Assuming that the Danville Manufacturing Company allocates service department 1 costs first, the amount of service department 1 costs allocated to service department 2 under the step-down method would be:

    A. $0.
    B. $1,600.
    C. $2,000
    D. $2,400.

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    Solution Summary

    This solution explains how to find the amount of costs that the Danville Manufacturing Company's service department 1 allocated to its service department 2, using the step-down method and given figures for their department costs, the number of transactions, and the amount of square feet occupied by both service departments.