Partners provides management consulting services to government and corporate clients.Hudsonhas two supportdepartmentsadministrative(IS)andtwo operating departments government 2013, Hudson's cost records indicate the following:

SUPPORT			OPERATING
	AS	IS		GOVT	CORP	Total
Budgeted overhead costs before any
interdepartment cost allocations	$630,000	$1,800,000		$7,325,000	$12,420,000	$22,175,000
Support work supplied by AS
(budgeted head count)	---	25%		45%	30%	100%
Support work supplied by IS
(budgeted computer time)	10%	---		27%	63%	100%

REQUIREMENTS

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

1.

a.	Direct method
b.	Step-down method (Allocate AS first)
c.	Step-down method (Allocate IS first)

2.

Compare and explain differences in the support-department costs allocated to each operating department.

3.

What approaches might be used to decide the sequence in which to allocate support departments when using the step-down method?