Support department cost allocation. (CMA) Computer Information Services is a computer software consulting company. Its three major functional areas are computer programming, information systems consulting, and software training. Carol Birch, a pricing analyst in the Accounting Department, must develop total costs for the functional areas. These costs will guide pricing for new contracts. In computing these costs, Birch is considering two different methods of allocating support department costs the direct method and the step-down method. Birch assembled the following data on budgeted costs from its two support departments, the Information Systems Department and the Facilities Department.

Support Departments Operating Departments Information Systems Facilities Computer Programming Consulting Software Training Total Budgeted costs $51,000 $26,000 $76,000 $111,000 $86,000 $350,000 Information Systems

(hours) — 300 1,200 600 900 3,000 Facilities

(thousands ofsquare metres) 200 — 400 600 800 2,000 Required 1. Allocate the support department costs in Information Systems and Facilities using

(a) the direct method and

(b) the step-down method (Information Systems first).

2. Explain to Birch any differences between the methods. Which method should she use?

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