Question

PM Industries has two service departments (Administration and Maintenance) and two operating departments. Departmental costs before allocations are $950,000 for Administration and $1,650,000 for Maintenance. Maintenance costs are allocated on the basis of the number of LPM employees. Administration has 450 employees; Maintenance has 750 employees; Operating Department 1 has 1,350 employees and Operating Department 2 has 1,200 employees. Using the step-down method, how much of the cost from the Maintenance Department will be allocated to Administration

Answer 1

The answer is " 873,529.412"

Step-by-step explanation:

Following are the equation which the administration would be responsible for the costs of the maintenance departments:

`\to 1,650,000 * (1,350)/((1,350+1,200))\\\\\to 1,650,000 * (1,350)/(2,550)\\\\\to 1,650,000 * (135)/(255)\\\\\to 1,650,000 * (27)/(51)\\\\\to 1,650,000 * (9)/(17)\\\\\to (14,850,000)/(17)\\\\\to 873,529.412`