Create an Excel spreadsheet to allocate costs using the direct method and the step-down method. Use the results to answer questions about your findings.
Scenario: Texas Building Services has asked you to help it determine the best method for allocating costs from its service departments to its producing departments. Before the allocation, the four departments incurred costs of $4,100,000. $1,260,000 was deducted from facilities management and added it to the other three departments. There was no net effect on the total cost. In step 2 $660,000 was deducted from human resources and added to the remaining two departments. Total cost was unaffected. After allocation, all $4,100,000 remains, but it is all in the processing and assembly departments. Nothing is left in facilities management or human resources.
1.What are the total costs for the residential departments 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 Dallas Cleaning use to allocate its service departments' costs to its producing departments? Why?