Question
XYZ Steel has two profit centers: Ingots and Stainless Steel. These profit centers rely on services supplied by two service departments: electricity and water. The
XYZ Steel has two profit centers: Ingots and Stainless Steel. These profit centers rely on services supplied by two service departments: electricity and water. The profit centers' consumption of the service departments' outputs (in millions) is given in the following table:
Service Departments Profit Centers
Electricity Water Ingots Stainless Steel Total
Electricity 2,500 kwh 2,500 kwh 3,000 kwh 2,000 kwh 10,000 kwh
Water 1,000 gal. 800 gal. 1,000 gal. 2,000 gal. 4,800 gal.
The total operating costs of the two service departments are:
Electricity $ 80 million
Water 60 million
Total cost $ 140 million
Required:
Service department costs are allocated to profit centers using the step-down method. Water is the first service department allocated. Compute the total cost of allocated service department costs for each of the profit centers using the step-down allocation method.
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