Please assist with the given problem
Direct Method
Service Departments Profit Centers
|
Service Dept.
|
Electricity
|
Water
|
Ingots
|
Stainless steel
|
Total
|
|
Electricity
|
2500 kwh
|
2500 kwh
|
3000 kwh
|
2000 kwh
|
10000 kwh
|
|
Water
|
1000 gal
|
800 gal
|
1000 gal
|
2000 gal
|
4800 gal
|
The total operating costs of the two service departments are
Electricity $80 million
Water 60 million
Total cost $140 million
Require to do:
• Service department costs are allocated to profit centers using the step-down method and direct method. Water is the first service department allocated. Compute the cost of electricity per kilowatt-hour using step-down method and direct method.
• Critically evaluate this allocation method