Direct and step-down allocation, e-books is an online book retailer. The company has four departments. The two revenue-producing departments are corporate sales and consumer sales. The two support departments are administrative (human resources, accounting, and so on) and information systems (IS). Each of the sales departments conducts merchandising and marketing operations independently.

The following data for September 2007 will assist you in allocating costs to the differ¬

ent departments:

Revenue # ofEmployees Processing Time Used Corporate Sales $1,334,200 42 1,920 Consumer Sales $ 667,100 28 1,600 Administrative — 14 320 IS — 21 1,120 Costs incurred in each of the four departments for September 2007 are as follows:

Corporate Sales $998,770 Consumer Sales 490,360 Administrative 73,200 Information Systems 234,900 The administrative support percentages are based on head count. The information systems support percentages are based on processing time used.

Required 1. Allocate the support department costs to the revenue-producing departments using the direct method.

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2. Develop appropriate overhead allocation rates for the four departments. Rank the support departments on the percentage of services rendered to other support departments (using September departmental costs). Use this ranking and your overhead rates to allocate support costs based on the step-down allocation method.

3. Could you have ranked the support departments differently? Ifso, how else could you rank the support departments? Had you done so in this problem, would the allocations have changed?