Cost allocation is often the centerpiece of conflict that is resolved in court cases. The litigation usually involves the

dispute over how costs are allocated to a product or product line that is of interest to the plaintiff. This is particularly an

issue when a company produces some products or services for a price$-$competitive market while other products or

services are produced for a governmental unit on a cost$-$plus or reimbursement basis.

Nursing Care Incorporated, or $NCl,$ operates both a small nursing home and a retirement home. There is a single kitchen

used to provide meals to both the nursing home and retirement home, meaning labor costs and utilities costs of the

kitchen are shared by the two homes. There is also a centralized cleaning department that provides the cleaning

services for both homes as well as the kitchen. The nursing home serves only indigent patients who are on Medicaid.

The state Department of Health and Family Services $($DHFS$)$ reimburses $NCl$ at Medicaid$-$approved cost reimbursement

rates. The Medicaid reimbursement rates are based on cost information supplied by NCI. The relevant cost and

allocation data for the most recent year appear in the following table.

Required:

Management of $NCl$ currently allocates the kitchen and cleaning department costs based on the number of residents

in each home. Determine the amount of service department costs assigned to each of the homes using this allocation

base.

DHFS auditors believe the step method of allocation should be used by first assigning cleaning costs based on square

feet and then kitchen costs based on number of residents. Determine the amount of service department costs assigned

to each of the homes using this allocation method. $($Do not round percentages in your calculations.$)$