ICAEW BIP · Chapter 2 · Question 2 of 12
A factory has two production departments (X and Y) and two service departments. Maintenance costs £40,000 and provides 50% of its services to X, 40% to Y and 10% to the canteen. The canteen costs £30,000 before any reapportionment and serves X and Y in the ratio 60:40. It does no work for maintenance. Using the step-down method, starting with maintenance, what is the total service department cost reapportioned to department X?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: D) £40,400
Explanation
Maintenance is reapportioned first: X £20,000, Y £16,000, canteen £4,000. The canteen total becomes £30,000 + £4,000 = £34,000, which is then shared 60:40, giving X £20,400. Total reapportioned to X = £20,000 + £20,400 = £40,400. The step-down method fully reflects maintenance's work for the canteen because the canteen does no work for maintenance.
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