Economics · Cost Accounting
A factory has two production departments (Machining and Assembly) and two service departments (Maintenance and Canteen). The total allocated overheads are: Machining $120,000; Assembly $72,000; Maintenance $10,000; Canteen $18,000. Under the step-down method, Maintenance is reapportioned first based on machine hours, and Canteen is reapportioned second based on the number of employees. Which of the following statements regarding the cumulative effect on the Machining Department's final overhead balance is entirely correct?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1An increase in the number of employees in the Machining department will decrease the final overhead allocated to it.
- 2If Canteen provides 10% services to Maintenance, it increases Machining overhead, while Maintenance providing services to Canteen has no effect.
- 3If Maintenance provides 20% services to Canteen, and the Machining department increases its employee count, both scenarios will increase Machining overhead.✓
- 4If Canteen provides 10% services to Maintenance, it decreases Machining overhead.
Correct answer
If Maintenance provides 20% services to Canteen, and the Machining department increases its employee count, both scenarios will increase Machining overhead.
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