Orchid Richard Company has two products. Product 1 is manufactured entirely in Department X. Product 2 is manufactured in Department Y. To produce these two products the Orchid Richard Company has two support departments. MaterialHandling Department and Power Generating Department. An analysisof the work done by Material Handling and Power Generating Department in a typical period follows:

	Used By
Supplied by	Material Handling	Power Generating	Department X	Department Y
Material Handling	-	150	375	225
Power generating	600	-	120	480

The work done by Material Handling Department is measured by the direct labor hours of material handling time. The work done by Power Generating Department is measured by the kilowatt hours per hour. The budgetedcosts of the support department for the coming year are as follows:

	Material Handling	Power Generation
Variable indirect labor and indirect material costs	$105,000	$12,000
Supervision	$15,000	$12,000
Depreciation	$30,000	$24,000
Total Costs	$150,000	$48,000

The budgeted costs of the operating departments for the comingyear are $2,250,000 for Department X and

$1,200,000 for Department Y.

Required:

1. Rank the support department based on the percentage of their services provided to other support departments. Use this ranking to allocate the support department costs to the operating departments based on the step-down method and calculate the total costs of the production departments (Material Handling and Power Generation) after the allocation.
2. If the company decided to only allocate support costs to the production department, what will be the totalcosts for both the production department?
3. An outside company has offered to supply all the power needed by the Orchid Richard Company and to provide all the services of the present power department. The cost of the service will be$40 per kilowatt hour of power. Should Orchid Richard accept? Explain.