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Direct and Step Down Allocations

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Chapter 12 Decision Guideline
Dallas Cleaning
Costs Allocations form Service Departments to Producing Departments
14/07/2010

Personnel Administrative Residential commercial Total Res/Comm Total Admin/Res/Comm Grand Total
Direct Department Costs $70,000 $90,000 $240,000 $400,000 ??? ????
Number of Employees 6 10 36 24 ???? ?????

Direct Method
Direct Department Costs $70,000 $90,000 $240,000 $400,000
Personnel Allocation ????? ?????? 42000 28000
Administrative Allocation ????? ????? 54000 36000
Total Costs ????? ?????? $336,000 $464,000 ?????

Step-Down Method
Direct Department Costs $70,000.00 $90,000.00 $240,000.00 $400,000.00
Personnel Actions ?????? 10000 36000 24000
Administrative Allocation ?????? ?????? 60000 40000
Total Costs ??????? ??????? $336,000.00 $464,000.00 ??????

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The solution explains how to allocate cost using direct and step down methods

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Direct and Step-Down Allocations

Butler Home Products has two producing departments, Machining and Assembly, and two service departments, Personnel and Custodial.

The company's budget for April 20X7 is
Service Departments Production Departments
Personnel Custodial Machining Assembly
Direct department costs $32,000 $70,000 $600,000 $800,000
Square feet 2,000 1,000 10,000 25,000
Number of employees 15 30 200 250

Butler allocates personnel costs on the basis of number of employees. Butler allocates custodial costs on the basis of square feet.

1. Allocate personnel and custodial costs to the producing departments using the direct method.

2. Allocate personnel and custodial costs to the producing departments using the step-down method. Allocate personnel costs first.

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