Financial Services Company Has Two Service Departments and Two Operating

question 50

Multiple Choice

Financial Services Company has two Service Departments and two Operating Departments. Budgeted costs and other data relating to these departments are presented below:
$\begin{array}{|l|r|r|r|r|}\hline & \begin{array}{r}\text { Building \& } \\\text { Grounds }\end{array} & \text { Personnel } & \text { Operating } A& \text { Operating B } \\\hline \text { Departmental costs } & \$ 64,000 & \$ 200,000 & \$ 650,000 & \$ 800,000 \\\hline \text { Square Metres Occupied } & 1,000 & 3,000 & 12,000 & 18,000 \\\hline \text { Number of Employees } & 10 & 5 & 45 & 55 \\\hline \text { Professional Hours } & & & 76,000 & 92,000 \\\hline\end{array}$

The costs of Building & Grounds are allocated first on the basis of square metres of space occupied. Personnel costs are allocated on the basis of number of employees. The departmental costs for the Operating Departments are overhead costs. Predetermined overhead rates in the Operating Departments are calculated on the basis of professional hours.



- Assume that the company uses the step-down method of allocating Service Department costs to Operating Departments,and Building and Grounds costs are allocated first.How much Personnel Department cost would be allocated to Operating Department A?

• A) $0.
• B) $90,000.
• C) $92,880.
• D) $205,400.

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Definitions:

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