Montclair Tours provides guided educational tours to college alumni associations. The company is divided into two operating divisions: domestic tours and world tours. Each of the tour divisions uses the services of the company’s two support departments: Administration and Information Technology. Additionally, the Administration and Information Technology departments use the services of each other. Data concerning the past year are as follows:

Required
1. What are the total overhead costs of the operating departments (domestic and world tours) after the support department costs of Administration and Information Technology have been allocated using
(a) The direct method,
(b) The step-down method (allocate Administration first),
(c) The step-down method (allocate Information Technology first),
(d) The reciprocal method?
2. Which method would you recommend that Montclair Tours use to allocate service department costs?Why?

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Support Departments Operating Departments Information Domestic World Administration Technology Tours Tours Tota Budgeted overhead costs before 400,000 $250,000 $1300,000 $1,840,000 $3,790,0000 any interdepartment cost allocations Support work furnished: by Administration Budgeted administration salaries Percentage $88,000 55,000 77000 220,000 100% 4% 25% 35% by Information Technology Budgeted IT service hours Percentage 600 15% 2200 1,200 55% 4,000 100% 3%