Phoenix Partners provides management consulting services to government and corporate clients. Phoenix 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 2017, Phoenix's cost records indicate the following:

1.	Allocate the two support departments' costs to the two operating departments using the reciprocal method. Use (a) linear equation and (b) repeated iterations.
2.	Compare and explain differences in requirement 1 with those of the direct method and the step down method. Which method do you prefer? Why?

The two support departments' costs have been allocated to the two operating departments using the direct method and the step-down method (AS departmentfirst) and the step-down method (IS department first). The results of the allocations are as follows:

	Support Departments		Operating Departments
Direct Method	AS	IS	GOVT	CORP	Total
Budgeted overhead costs
before interdepartment cost allocations	$600,000	$2,400,000	$8,756,000	$12,452,000	$24,208,000
Allocation of AS costs	(600,000)		320,000	280,000
Allocation of IS costs		(2,400,000)	800,000	1,600,000
Total budgeted overhead of operating departments	$0	$0	$9,876,000	$14,332,000	$24,208,000

	Support Departments		Operating Departments
Step-down Method	AS	IS	GOVT	CORP	Total
Budgeted overhead costs
before interdepartment cost allocations	$600,000	$2,400,000	$8,756,000	$12,452,000	$24,208,000
Allocation of AS costs	(600,000)	150,000	240,000	210,000
	$0	2,550,000
Allocation of IS costs		(2,550,000)	850,000	1,700,000
Total budgeted overhead of operating departments		$0	$9,846,000	$14,362,000	$24,208,000

	Support Departments		Operating Departments
Step-down Method	AS	IS	GOVT	CORP	Total
Budgeted overhead costs
before interdepartment cost allocations	$600,000	$2,400,000	$8,756,000	$12,452,000	$24,208,000
Allocation of IS costs	240,000	(2,400,000)	720,000	1,440,000
	$840,000	$0
Allocation of AS costs	(840,000)		448,000	392,000
Total budgeted overhead of operating departments	$0		$9,924,000	$14,284,000	$24,208,000

	GOVT	CORP
Direct method	$1,120,000	$1,880,000
Step-down (AS first)	1,090,000	1,910,000
Step-down (IS first)	1,168,000	1,832,000