Support department cost allocations; single-department cost pools; direct, step-down, and reciprocal methods. The Manes Company has two products. Product 1 is manufactured entirely in Department X. Product 2 is manufactured entirely in Department Y. To produce these two products, the Manes Company has two support departments: A (a materialshandling department) and B (a power-generating department).

An analysis of the work done by Departments A and B in a typical period is as follows:

Used by Supplied by A B X Y A — 100 250 150 B 500 — 100 400 The work done in Department A is measured by the direct labour-hours ofmaterials-handling time. The work done in Department B is measured by the kilowatt-hours of power.

The budgeted costs of the support departments for the coming year are Department A Department B Variable indirect labour and indirect materials costs $ 72,000 $12,000 Supervision 10,000 10,000 Amortization 20,000 20,000

$102,000 $42,000 The budgeted costs of the operating departments for the coming year are $1,500,000 for Department X and $800,000 for Department Y.

Supervisory costs are salary costs. Amortization in B is the straight-line amortization of power-generation equipment in its nineteenth year of an estimated 2 5-year useful fife; it is old but well-maintained equipment.

Required 1. What are the allocations of costs ofsupport Departments A and B to operating Departments X and Y using the direct method, two different sequences ofthe step-down method, and the reciprocal method ofreallocation?

2. The power company has offered to supply all the power needed by the Manes Company and to provide all the services of the present Power Department. The cost of this service will be $42 per kilowatt-hour of power, fihould Manes accept?

Explain.