The ABC Company has two operating divisions and two support divisions. The following table presents the amount of hours of service provided by the two support divisions:
OP 1 OP 2 SUP 1 SUP 2
SUP 1 2000 4,000 0 2,000
SUP2 6,000 3,000 1,000 0
The costs for the four departments appear below:
Department Costs
OP 1 $350,000
OP 2 $400,000
SUP 1 $250,000
SUP 2 $170,000
a) Allocate the support department costs to the operating departments using the direct method.
b) Allocate the support department costs to the operating departments using the step-down method, starting with Support Department 1.
c) State the equations one would use to allocate the support department costs to the operating departments using the reciprocal method. You do not need to solve the equations!