Question

A company using the step-down method of allocating service department costs has two service departments and two production departments. The amount of each department's costs is used to determine the relative value of each department to the firm for purposes of allocation. HR costs $100,000, and maintenance costs $150,000. These departments respectively use 8,000 and 10,000 labor-hours. Production departments have original department costs and labor-hours of $400,000 (40,000 labor-hours) for tennis balls and $300,000 (30,000 labor-hours) for racquet balls. What is the total cost for the tennis ball department if labor-hours are used as the sole cost driver? (Round all intermediate calculations to three decimal places.)

Answer 1

What is the total cost for the tennis ball department if labor-hours are used as the sole cost driver? (Round all intermediate calculations to three decimal places.)

The answer is $542,857

Step-by-step explanation:

HR costs = 100,000

Maintenance costs = $150,000

HR Cost=(100,000 x4/7)= $57,143

Maintenance Cost=(150,000 x4/7)=$85,714

Original Department Cost= $ 400,000

Therefore, Total Cost= $ 542,857 (answer)

Key notes:

40,000 labor hours for tennis balls

30,000 labor hours for racquet balls

Total labor hours = 70,000

Fraction to use = 40,000/70,000 = 4/7