Hudson Partners provides management consulting services to government and corporate clients. Hudson has two support departmentsadministrative services (AS) and information systems (IS)and two operating departmentsgovernment consulting (GOVT) and corporate consulting (CORP). For the first quarter of 2020, Hudson's cost records indicate the following: Data table A B D E F 1 SUPPORT OPERATING 2 AS IS GOVT CORP Total $ 390,000$ 3,600,000 $ 8,850,000 $ 12,420,000/ $ 25,260,000 Budgeted overhead costs before any 3 interdepartment cost allocations Support work supplied by AS 4 (budgeted head count) Support work supplied by IS 5 (budgeted computer time) 0 20% 48% 32% 100% 10% 0 36% 54% 100% - X Reference GOVT CORP 1,674,000 $ 2,316,000 Direct method Step-down (AS first) Step-down (IS first) 1,658,400 2,331,600 2,244,000 1,746,000 Requirements 1. Allocate the two support departments' costs to the two operating departments using the reciprocal method. Use (a) linear equation and (b) repeated iterations. Compare and explain differences in requirement 1 with those of the direct method and the step down method. Which method do you prefer? Why? 2 . The two support departments' costs have been allocated to the two operating departments using the direct method and the step-down method (AS department first) and the step-down method (IS department first). The results of the allocations are as follows: I Direct method Support Departments Operating Departments Direct Method AS IS GOVT CORP Total Budgeted overhead costs before interdepartment cost allocations Allocation of AS costs $ 390,000 $ (390,000) 3,600,000 $ 8,850,000 $ 12,420,000 $ 25,260,000 234,000 156,000 (3,600,000) 1,440,000 2,160,000 Allocation of IS costs $ 0 $ 0 $ 10,524,000 $ 14,736,000 $ 25,260,000 Total budgeted overhead of operating departments Step-down method (AS first) Support Departments Operating Departments AS IS GOVT CORP Total Step-down Method Budgeted overhead costs before interdepartment cost allocations $ 12,420,000 $ 25,260,000 390,000 $ 3,600,000 $ 8,850,000 $ (390,000) 78,000 187,200 Allocation of AS costs 124,800 $ 0 3,678,000 (3,678,000) Allocation of IS costs 1,471,200 2,206,800 $ 0 $ 10,508,400 $ 14,751,600 $ 25,260,000 Total budgeted overhead of operating departments Step-down method (IS first) Support Departments Operating Departments Step-down Method AS IS GOVT CORP Total Budgeted overhead costs before interdepartment cost allocations $ 12,420,000 $ 25,260,000 Allocation of IS costs 1,944,000 390,000 $ 3,600,000 $ 8,850,000 $ 360,000 (3,600,000) 1,296,000 $ 0 750,000 (750,000) 450,000 $ Allocation of AS costs 300,000 $ 0 $ 10,596,000 $ 14,664,000 $ 25,260,000 Total budgeted overhead of operating departments Hudson Partners provides management consulting services to government and corporate clients. Hudson has two support departmentsadministrative services (AS) and information systems (IS)and two operating departmentsgovernment consulting (GOVT) and corporate consulting (CORP). For the first quarter of 2020, Hudson's cost records indicate the following: Data table A B D E F 1 SUPPORT OPERATING 2 AS IS GOVT CORP Total $ 390,000$ 3,600,000 $ 8,850,000 $ 12,420,000/ $ 25,260,000 Budgeted overhead costs before any 3 interdepartment cost allocations Support work supplied by AS 4 (budgeted head count) Support work supplied by IS 5 (budgeted computer time) 0 20% 48% 32% 100% 10% 0 36% 54% 100% - X Reference GOVT CORP 1,674,000 $ 2,316,000 Direct method Step-down (AS first) Step-down (IS first) 1,658,400 2,331,600 2,244,000 1,746,000 Requirements 1. Allocate the two support departments' costs to the two operating departments using the reciprocal method. Use (a) linear equation and (b) repeated iterations. Compare and explain differences in requirement 1 with those of the direct method and the step down method. Which method do you prefer? Why? 2 . The two support departments' costs have been allocated to the two operating departments using the direct method and the step-down method (AS department first) and the step-down method (IS department first). The results of the allocations are as follows: I Direct method Support Departments Operating Departments Direct Method AS IS GOVT CORP Total Budgeted overhead costs before interdepartment cost allocations Allocation of AS costs $ 390,000 $ (390,000) 3,600,000 $ 8,850,000 $ 12,420,000 $ 25,260,000 234,000 156,000 (3,600,000) 1,440,000 2,160,000 Allocation of IS costs $ 0 $ 0 $ 10,524,000 $ 14,736,000 $ 25,260,000 Total budgeted overhead of operating departments Step-down method (AS first) Support Departments Operating Departments AS IS GOVT CORP Total Step-down Method Budgeted overhead costs before interdepartment cost allocations $ 12,420,000 $ 25,260,000 390,000 $ 3,600,000 $ 8,850,000 $ (390,000) 78,000 187,200 Allocation of AS costs 124,800 $ 0 3,678,000 (3,678,000) Allocation of IS costs 1,471,200 2,206,800 $ 0 $ 10,508,400 $ 14,751,600 $ 25,260,000 Total budgeted overhead of operating departments Step-down method (IS first) Support Departments Operating Departments Step-down Method AS IS GOVT CORP Total Budgeted overhead costs before interdepartment cost allocations $ 12,420,000 $ 25,260,000 Allocation of IS costs 1,944,000 390,000 $ 3,600,000 $ 8,850,000 $ 360,000 (3,600,000) 1,296,000 $ 0 750,000 (750,000) 450,000 $ Allocation of AS costs 300,000 $ 0 $ 10,596,000 $ 14,664,000 $ 25,260,000 Total budgeted overhead of operating departments