7-34 Departmental Cost Allocation; Outsourcing Levy Company produces two software produce (WebX and WebY) in two separate departments (A and B). These products are highly regarde network maintenance programs WebX is used for small networks and WebY is used for larg networks. Levy is known for the quality of its products and its ability to meet dates promised to software upgrades. Department A produces WebX, and department B produces WebY. The production depan. ments are supported by two support departments, systems design and programming services The source and use of the support department time are summarized as follows: Design From Design Programming Programming 5,000 Department A 1,000 200 Department B 9,000 I 600 Total Labor-Hours 15,000 1,000 200 The costs in the two service departments are as follows: Labor and materials (all variable) Depreciation and other fixed costs Total Design $30,000 40,000 $70,000 Programming $25,000 25,000 $50,000 Required 1. What are the costs allocated to the two production departments from the two service departments using (a) the direct method, (b) the step method (design department goes first), and (c) the reciprocal method? 2. The company is considering outsourcing programming services to DDB Services, Inc., for 545 per hour. Should Levy do this? has two production departments hasing