A. Under the step method the costs of the service departments are allocated one by one. The costs of a service department will be allocated to the production department and to any service department whose costs have not yet been allocated. We are told that the service department that receives the least services from the other service department will be allocated first. In this question, we need to allocate the Power Department first since it receives only 10% of the Maintenance Department work, and the Maintenance Department uses 20% of the power. So, the costs of the Power Department need to be allocated to the Maintenance Department and the production departments. In total, the Power Department provided 250,000 kilowatt hours and the Maintenance Department used 50,000, or 20% of those hours. The Maintenance Department will then receive 20%, or $12,500 of the Power Department costs.
B. Under the step method some service department costs are allocated to the other service departments. Since the Power Department receives less 'service' from the Maintenance Department than it provides to the Maintenance Department, the Power Department is allocated first. Some of the Power Department costs will be allocated to the Maintenance Department.
C. This answer is incorrect.
D. This answer is incorrect.
