Answer (B) is correct . Under the step-down method, service costs are allocated to all departments. However, no reciprocal allocations among service departments are performed. The process usually begins with the department that provides the greatest percentage of its services to other service departments. Thus, the Repair Department is the logical starting point. Given that service costs are allocated to each department (service or production) on the basis of its proportion of employees (excluding employees in the allocating department), the allocation of the Repair Department’s overhead to the Tool Department is $875 {[1 employee ÷ (1 + 2 + 25 + 12)] × $35,000}.
Answer (A) is incorrect because Under the step-down method, other service departments share in the allocation of costs.
Answer (C) is incorrect because This amount is far greater than could be allocated to a service department with one employee.
Answer (D) is incorrect because This amount is far greater than could be allocated to a service department with one employee.
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The Repair Department supports the greatest number of departments, followed by the Tool Department. Overhead cost is allocated to departments based upon the number of employees.If M&P uses the step-down method of allocation, the allocation from the Repair Department to the Tool Department would be