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Step-Down Method

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Using the following example, allocate service center costs to each of the three revenue centers using the step-down method:
Full-time
Costs Square Feet Meals Employees

Service Centers
Maintenance $ 150,000 ---- 2,500 10
Dietary 400,000 10,000 ---- 15
Administrative 600,000 20,000 2,500 10
Revenue Centers
Laboratory 600,000 30,000 2,500 20
Radiology 800,000 40,000 2,500 30
Nursing 2,000,000 100,000 30,000 50
$ 4,550,000 200,000 40,000 135

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Solution Summary

This solution allocates three service centers costs to three revenue centers based on the step-down method.

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The step-down method involves allocating the costs of each service center to the remaining centers (service/revenue) through an allocation method. Once a service center has its costs allocated to the remaining centers it is removed from consideration of future cost allocations.

In this particular problem the step-down method will proceed as ...

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