Australian Medical Airlines is a small freight company that distributes medical supplies by air around Australia. It has three support departments; 1) Finance/Accounting, 2) Reservations and Scheduling and 3) IT, and two operating departments; Ground Operations and Flight Operations. The following table outlines the total budgeted cost for each department:

Departments	Cost
Finance/Accounting	$170 000
Reservations and Scheduling	$120 000
Information Technology Services (IT)	$200 000
Ground Operations	$400 000
Flight Operations	$650 000

The following table outlines how much each operating department uses the support department's services.

	Support Departments	Operations Departments
Support Departments	Reservations and Scheduling	Finance /Accounting	IT	Ground Operations	Flight Operations
Finance /Accounting	20%	0%	40%	30%	10%
Reservations and Scheduling	0%	15%	20%	45%	20%
IT	20%	30%	0%	30%	20%

Required: a short report to the CFO of Australian Medical Airlines that:

1. Outlines the most accurate total budgeted cost of the two operations departments. [ 10 marks]
2. Includes a justification for the cost allocation method that you used above (direct or step down) by comparing it to the alternative methods and why you considered it was most appropriate, and [5 marks]
3. Identifies two (2) important considerations when communicating these cost calculations to the Head of Ground Operations and the Head of Flight Operations. [5 marks]