Goldfarb's Book and Music Store has two service departments, Warehouse and Data Center. Warehouse Department costs of $350,000 are allocated on the basis of budgeted warehouse-hours. Data Center Department costs of $150,000 are allocated based on the number of computer log-on hours. The overhead costs of operating departments Music and Books are $125,000 and $150,000, respectively. 2,000 and 2,500 direct labor hours (the allocation base) are budgeted for department Music and Books, respectively. Data on budgeted warehouse-hours and number of computer log-on hours are as follows:

	Support Departments		Production Departments
	Warehouse Department	Data Center Department	Music	Books
Budgeted costs	$350,000	$150,000	$125,000	$150,000
Budgeted warehouse-hours	NA	500	1,000	1,500
Number of computer hours	200	NA	800	1,000

Required:

1) Allocate the two support departments costs to the two operating departments using the following methods:

a. Direct method

b. Step-down method (allocate Warehouse first)

c. Step-down method (allocate Data Center first)

2) Determine the departmental Books overhead rate including the cost allocated from Warehouse Department and Data Center Department.

3) Discuss the implications of the different methods used to allocate the support department costs to the operating departments. Specifically, explain how the use of different methods affect decision-making.