Pickoff and Dropoff Co. run a limousine firm. The firm has both luxury limousines rented by time and a shuttle bus support to the airport. Two separate managers, evaluated as profit centers, oversee each service. Pickoff and Dropoff also have two cost pools for support activities: maintenance and administration. The following table provides relevant data:

The limousine expects to offer 10,000 hours of service, and the shuttle expects to provide 25,000 hours.

Required:
a. Allocate the costs of the support activities (departments) to the line activities (departments) using the direct method. Calculate the hourly cost rates for the limousine and shuttle services.
b. Allocate the costs of the support activities (departments) to the line activities (departments), using the step-down method. Rank support departments by size to determine the order of allocation.
c. Allocate the costs of the support activities (departments) to the line activities (departments), using the reciprocal method.
d. Which of the rates do you think is most accurate?Why?

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Maintenance Administration Shuttle S240,000 $324,000 Limo Traced costs $75,000 $30,000 Service consumntion pattern Maintenance AdministrationLimo Shuttde Services Maintenance provided Aministration 4,000 hours 2000 hours 4,000 hours 20 persons 25 persons persons