Lifestyle Inc. (Lifestyle) is a company engaged in the design and manufacture of specialized machinery. The company has two support departments - the Engineering Department and the Supply Chain Department. Both departments are serving the manufacture of the companys two main product lines Product A and Product B.

The work done in Engineering Department is measured by the direct labor-hours of engineering and design works. The work done in Supply Chain Department is measured by

the number of direct material purchase order. The budgeted costs departments for the coming year are as follows:

Question 1 (25 marks) Lifestyle Inc. (Lifestyle) is a company engaged in the design and manufacture of specialized machinery. The company has two support departments the Engineering Department and the Supply Chain Department. Both departments are serving the manufacture of the company's two main product lines- Product A and Product B. The work done in Engineering Department is measured by the direct labor-hours of engineering and design works. The work done in Supply Chain Department is measured by the number of direct material purchase order. The budgeted costs of the two support departments for the coming year are as follows Engineering Supply Chain Variable indirect labor and indirect materials costs $100,000 $230,000 90,000 100,000 50,000 Depreciation of machinery and equipment S180,000 Supervision costs are salary costs. Depreciation of machinery and equipment is the straight- line depreciation in its 19th year of an estimated 25-year useful life. The distribution of each support department's effort to the two product lines are as follow Used Served by Engineering Supply ChainProduct A Product B 400 1,000 600 Direct labor-hours Supply Chain Department Number of direct 1,500 250 750 Required: (a) Allocate the costs of the two support departments-Engineering and Supply Chain, to the product lines of Product A and Product B, using the following methods: 1. the direct method 2. the step-down method (allocate to Engineering Department first) 3. the step-down method (allocate to Supply Chain Department first) (3 marks) (4 marks) (4 marks) and 4. the reciprocal method using linear equations (10 marks) (b) A third-party logistic service provider has offered to supply all supply chain services needed by Lifestyle and to provide all the services of the present Supply Chain Department. The cost of this service will be $45 per direct material purchase order. If Lifestyle decides to outsource the services, all existing staff in the Supply Chain Department will be transferred to other new positions in the company; and all the machine and equipment currently used in the Supply Chain Department will be disposed with zero value. Should Lifestyle accept the offer? Explain (4marks)