Question
Lee Corp has two service departments, Facilities and Human Resources. Facilities Department costs of $325,000 are allocated on the basis of budgeted hours. Human Resources
Lee Corp has two service departments, Facilities and Human Resources. Facilities Department costs of $325,000 are allocated on the basis of budgeted hours. Human Resources Department costs of $220,000 are allocated based on the number of employees. The costs of operating departments A and B are $210,000 and $315,000, respectively. Data on budgeted hours and number of employees are as follows: Support Departments Production Departments Facilities Department Human Resources Department A B $210,00 $315,00 Budgeted costs $325,000 $220,000 0 0 Budgeted maintenance- hours 880 1250 700 Number of employees 60 NA 300 640 Required: a. Using the step-down method, what amount of Facilities Department cost will be allocated to Department B if the service department with the highest percentage of interdepartmental support service is allocated first? (Do not round any intermediary calculations.) b. What is the advantage of the step-down method over the direct method? (Briefly explain in words.)
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