ABC Company has two support departments (Power and Maintenance) and two producing departments (Assembly and Finishing). The direct allocation method is currently used to assign support department costs to the producing departments. The causal factor for the power costs is kilowatt hours; the causal factor for the maintenance costs is repair hours. Assume the following information Power Maintenance Assembly Finishing Direct Costs $100K $150K $75K $50 KW Hours 10K 90K 100K Repair Hours 500 2500 2000 ABC decides to switch to Step-down method and cost allocation sequence is based on a ranking of percentage of services provided to other support departments, which of the following best describes this procedure? A. Power department’s costs are allocated to Assembly and Finishing, then Maintenance’s costs are allocated to Assembly and Finishing. B. Power department’s costs are allocated first to Maintenance, Assembly and Finishing, then Maintenance’s costs are allocated to Assembly and Finishing. C. Maintenance department’s costs are allocated to Assembly and Finishing, then Power’s costs are allocated to Assembly and Finishing. D. Maintenance department’s costs are allocated to Power, Assembly and Finishing, then Power’s costs are allocated to Assembly and Finishing.
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
*Note: the correct answer is D per the professor. Can anyone explain the reasoning behind this? See below:
ABC Company has two support departments (Power and Maintenance) and two producing departments (Assembly and Finishing). The direct allocation method is currently used to assign support department costs to the producing departments. The causal factor for the power costs is kilowatt hours; the causal factor for the maintenance costs is repair hours. Assume the following information
| Power | Maintenance | Assembly | Finishing | |
| Direct Costs | $100K | $150K | $75K | $50 |
| KW Hours | 10K | 90K | 100K | |
| Repair Hours | 500 | 2500 | 2000 |
ABC decides to switch to Step-down method and cost allocation sequence is based on a ranking of percentage of services provided to other support departments, which of the following best describes this procedure?
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