Georgeson Emergency Care Hospital uses the step-down method to allocate service department costs to operating departments. The hospital has two service departments, Administration and Information Technology (IT), and two operating departments, Emergency Room and Intensive Care. Service Department Operating Department AdministrationIT Emergency RoomIntensive CareDepartmental costs$13,340$15,805 $597,700$396,240Employees45 14283Computers44 6546 Administration Department costs are allocated first on the basis of employees and IT Department costs are allocated second on the basis of computers. Required: Allocate the service department costs to the operating departments using the step-down method.
What will be an ideal response?
Allocation base for Administration Department costs = 5 + 142 + 83 = 230
Allocation base for IT Department costs = 65 + 46 = 111
| Service Department | Operating Department | |||||||
| Administration | IT | Prenatal Care | Postnatal Care | |||||
| Departmental costs | $ | 13,340 | $ | 15,805 | $ | 597,700 | $ | 396,240 |
| Allocation: | ||||||||
| Administration costs (5/230, 142/230, 83/230) | (13,340) | 290 | 8,236 | 4,814 | ||||
| IT costs (65/111, 46/111) | (16,095) | 9,425 | 6,670 | |||||
| Total costs after allocation | $ | 0 | $ | 0 | $ | 615,361 | $ | 407,724 |
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