Question

Aldo Industries, Inc. has two service departments (Human Resources and Building Maintenance) and two production departments (Machining and Assembly). The company allocates Building Maintenance cost on the basis of square footage and believes that Building Maintenance provides more service than Human Resources. The square footage occupied by each department follows.

Human Resources 6,000
Building Maintenance 13,000
Machining 1 8,000
Assembly 26,000

Assuming use of the step-down method, over how many square feet would the Building Maintenance cost be allocated (i.e., spread)?

Answer 1

The Building Maintenance costs at Aldo Industries, Inc. would be allocated over a total of 34,000 square feet, which is the combined square footage of the Machining and Assembly departments.

Step-by-step explanation:

The Building Maintenance costs at Aldo Industries, Inc. should be allocated over an area that includes the Machining and Assembly departments, but not the Building Maintenance department itself nor the Human Resources department, as typically service departments do not allocate costs to themselves. After excluding the square footage of the Human Resources and Building Maintenance departments, we are left with the Machining and Assembly departments to allocate the Building Maintenance costs to.

Machining department's square footage: 8,000
Assembly department's square footage: 26,000

Thus, the total square footage for allocation of Building Maintenance costs is the sum of Machining and Assembly departments' square footage:

8,000 square feet (Machining) + 26,000 square feet (Assembly) = 34,000 square feet

Therefore, the Building Maintenance cost should be allocated over 34,000 square feet.

Answer 2

50,000 Square feet

Step-by-step explanation:

Building maintenance provides more service than human resource and this means the cost of Building maintenance departments would be allocated to all remaining three department including human resource department.

Square feet over which Building Maintenance cost would be allocated = Square Footage of Human Resources + Square Footage of Machining + Square Footage of Assembly

= 6,000 + 18,000 + 26,000

= 50,000