US CMA Part 1 · Chapter 4 · Question 15 of 22
A company has two support departments, Maintenance (costs $120,000) and IT (costs $80,000), and two production departments, P1 and P2. Maintenance provides 20% of its services to IT, 50% to P1 and 30% to P2. IT provides 10% of its services to Maintenance, 36% to P1 and 54% to P2. Using the step-down method and allocating Maintenance first, what total support cost is allocated to P1?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) $101,600
Explanation
Maintenance: $120,000 allocated 20% to IT ($24,000), 50% to P1 ($60,000) and 30% to P2. IT now has $80,000 + $24,000 = $104,000. Under step-down, no cost goes back to Maintenance, so IT is allocated to P1 and P2 in the ratio 36:54, giving P1 $104,000 x 36/90 = $41,600. Total to P1 = $60,000 + $41,600 = $101,600.
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