Question:
Cognevich Company is organized in three service departments (Personnel, Administration, and Maintenance) and two revenue-generating departments (Stamping and Assembly). The company uses the step method to allocate service department costs to operating departments. In October 2000, Personnel incurred $60,000 of costs, Administration incurred $90,000, and Maintenance incurred $40,000. Proportions of services provided to other departments for October 2000 follow:
|
Personnel
|
Administration
|
Maintenance
|
|
Personnel
|
10%
|
5%
|
|
Administration
|
15%
|
|
10%
|
|
Maintenance
|
10%
|
15%
|
|
|
Stamping
|
45%
|
50%
|
50%
|
|
Assembly
|
30%
|
25%
|
35%
|
a. Assuming that the departments are listed in a benefits-provided ranking, what amount of Personnel cost should be assigned to each of the other departments for October? Administration costs? Maintenance costs?
b. What is the total service department cost that was assigned to Stamping in October? To Assembly?
c. Explain why the cost allocation is affected by the order in which costs are assigned.