Cost Allocation (Step-Down Method):

Allocate the following service department costs to the production departments using the step-down method:

• Service Department X Costs: $40,000
• Service Department Y Costs: $30,000
• Production Department A: 60% of the total costs
• Production Department B: 40% of the total costs

Requirements:

1. Allocate the service department costs to Production Department A.
2. Allocate the service department costs to Production Department B.
3. Discuss the advantages and disadvantages of using the step-down method for cost allocation.