12-59 Allocating Costs Using Direct and Step-Down Methods
Goal: Create an Excel spreadsheet to allocate costs using the direct method and the stepdown method. Use the results to answer questions about your findings.
Scenario: Antonio Cleaning has asked you to help them determine the best method for allocating costs from their service departments to their producing departments. Additional background information for your spreadsheet appears in Fundamental Assignment Material 12-B2. Exhibit 12-4 on page 532 illustrates the types of calculations that are used for allocating costs using the direct method and the step-down method.
Introduction to Management Accounting: Chapters 1-17, Fourteenth Edition, by Charles T. Horngren, Gary L. Sundem, William O. Stratton, David Burgstahler, and Jeff Schatzberg. Published by Prentice Hall. Copyright © 2008 by Pearson Education, Inc.
Chapter 12: Cost Allocation 585
When you have completed your spreadsheet, answer the following questions:
1. What are the total costs for the Residential department using the direct method? What are the total costs for the Commercial department using the direct method?
2. What are the total costs for the Residential department using the step-down method?
3. What are the total costs for the Commercial department using the step-down method?
4. Which method would you recommend that Antonio Cleaning use to allocate their service departments’ costs to their producing departments? Why?
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12-59-Allocating-Costs.xls File type: application/vnd.ms-excel Price: $8
