Describe how the direct, step-down and reciprocal cost allocation methods differ in the way they recognise reciprocal services among support departments. (6 marks)

2. The following comparative data is provided for the Laventura Boating Company. It is stated that the company has more accurate product cost information using activitybased costing to allocate overhead.

a. Describe the differences in profitability resulting from the two costing approaches. (4 marks)

b. Explain why the overhead cost is so different using activity-based costing. (2 marks)

c. List 2 possible decisions that management might take due to the significant change in relative profitability of the two types of boats resulting from the use of ABC. (2 marks)

d. Activity-based costing undoubtedly provides better cost information than most traditional costing methods, such as plant wide and department allocation methods. However, ABC has its limitations. What are the advantages and disadvantages of using activity-based costing?  

So i have attached the rubric for the assignment. So you would have an idea as to how the marks are allocated.

Laventura Boating Company(Direct labour hours as allocation base)FISHING BOATLUXURY BOAT$SDirect materials32 00041 600Direct labour19 20024 000Overhead*40 96051 200Total product cost per unit (a)33 328116 800Sales price (b)102 400144 000Profit= (b)-(a)19 07227 200Activity-Based Costing(several different allocation bases)FISHING BOATLUXURY BOAT$$Direct materials32 0001 600Direct labour19 20024 000Overhead*32 12895 360Total product cost per unit (a)83 328160 960Sales price (b)102 400144 000Profit= (b)-(a)19 07216 960) Describe how cost allocation methods differ (62 marks for each of the 3 methods clearlymarks)described.2a. Describe the differences in profitabilityFull marks for tworesulting from the two costing approaches. (4clear and relevantmarks)differences that alsoreference theinformation given inthe questions.2b. Explain why the overhead cost isTwo marks for a clearso different using activity-basedexplanation in thecosting. 2 markscontext of theinformation given.2c. List 2 possible decisions thatOne mark each for amanagement might take due to theminimum of twosignificant change in relativerelevant decisions thatprofitability of the two types of boatsmanagement couldresulting from the use of ABC. 2 markstake.2d. What are the advantages andOne mark each for adisadvantages of using activity-basedminimum of 3costing? 6 marksadvantages and 3disadvantages clearlypresented and usinginformation from thequestion asked whereappropriate