Rainier Manufacturing Company Uses the Step-Down Method for Allocating Its

question 43

Essay

Rainier Manufacturing Company uses the step-down method for allocating its support department costs to operating departments. The overhead costs of support Department A are to be allocated first, followed by the costs of B, and then those of C. The distribution of services is as follows:
Required:
a. Calculate the percentage of B's costs that should be allocated to Y.
b. Calculate the percentage of C's costs that should be allocated to B under the step-down method.

---

Definitions:

Days' Sales

Days' sales, often used in the context of days' sales outstanding (DSO), measures the average number of days that a company takes to collect revenue after a sale has been made.

Financial Statements

Structured documentation of financial transactions and status of a company, individual, or different entity.

Vertical Analysis

A method of financial statement analysis in which each entry of the main categories of the financial statements is listed as a percentage of another item.

Gross Profit

The financial gain made after subtracting the cost of goods sold from the total revenue generated from sales.