Chief Cleaning, Inc. provides cleaning services for a variety of clients. The company has two producing divisions, Residential and Commercial, and two service departments, Personnel and Administrative. The company has decided to allocate all service-department costs to the producing departments: Personnel, on the basis of number of employees, and Administrative, on the basis of direct department costs. The budget for 2006 shows the following:

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PERSONNEL ADMINISTRATIVE RESIDENTIAL Direct department costs Number of employees $70,000 $90,000 $ 240,000 3 5 12 Direct labour hours 24,000 Square metres cleaned 4,500,000 COMMERCIAL $ 400,000 18 36,000 9,970,000 1. Allocate service-department costs using the direct method. 2. Allocate service-department costs using the step-down method. The Personnel Department costs should be allocated first. 3. Suppose the company prices by the hour in the Residential Department and by the square metre cleaned in Commercial. Using the results of the step-down allocations in requirement 2,