Nano Limited manufactures two products. The production of Product 1 is entirely carried out in the Green department. The entire production of Product 2 takes place in the Yellow department. Nano Limited is able to produce these two products with the help of two support departments: Brick (a materials-handling department) and Hebel (a power-generating department). An analysis of the work done by departments Brick and Hebel in a typical period follows: Used By Supplied By Brick Hebel Brick Hebel Green Yellow 100 250 150 500 100 400 In the Brick department, the work that is done is measured by the direct labour-hours spent on the handling of materials. In the Hebel department, the work done is measured by the kilowatt-hours of power that are used. For the coming year, the following budgeted costs have been outlined for the support departments: Variable indirect labour and indirect materials costs Supervision Depreciation Brick Department (Materials Handling) $70,000 10,000 20,000 $100,000 +Power costs Hebel Department (Power Generation) $10,000 10,000 20,000 $40,000 +Materials-handling costs For the coming year, the budgeted costs of the operating departments are $1,500,000 for the Green department and $800,000 for the Yellow department. The cost of supervision is a salary cost. In Hebel department, depreciation is calculated based on straight- line depreciation of power-generation equipment which has reached its 19th year of its estimated 25-year useful life. This is an old, but well-maintained piece of equipment. Required 1. What is the allocation of costs of support departments Brick and Hebel to operating departments Green and Yellow? Use the following methods to report your results. (a) the direct method, (b) the step-down method (allocate department Brick first) (c) the reciprocal method 2. There is an outside company that has offered to supply all the power required by the Nano Limited and to provide all the services that are currently provided by the Nano Limited's power department. There will be a fee of $40 per kilowatt-hour of power that will be charged for this service. Do you think Nano should accept the offer? Explain and justify your answer.