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:
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.