Phoenix Partners provides management consulting services to government and corporate clients. Phoenix has two support departments-administrative services (AS) and information systems (15)and two operating departments-government consulting (GOVT) and corporate consulting (CORP). For the first quarter of 2017, Phoenix's cost records indicate the following: SUPPORT ASIS OPERATING GOVT CORP Total $ 600,000 $ 2,400,000 $8,756,000 $ 12,452,000 $ 24,208,000 Budgeted overhead costs before any interdepartment cost allocations Support work supplied by AS (budgeted head count) Support work supplied by IS (budgeted computer time) - 25% 40% 35% 100% 10% - 30% 60% 100% The two support departments' costs have been allocated to the two operating departments using the direct method and the step-down method (AS department first) and the step-down method (IS department first). The results of the allocations are as follows: i Direct method Operating Departments Support Departments AS IS Direct Method GOVT CORP Total $ 2,400,000 $ Budgeted overhead costs before interdepartment cost allocations Allocation of AS costs Allocation of IS costs 600,000 $ (600,000) (2,400,000) 0$ 8,756,000 $ 320,000 800,000 9,876,000 $ 12,452,000 $ 24,208,000 280,000 1,600,000 14,332,000 $ 24,208,000 0 $ Total budgeted overhead of operating departments Print Done 0 Step-down method (AS first) - X Support Departments AS IS Operating Departments GOVT CORP Total Step-down Method Budgeted overhead costs before interdepartment cost allocations Allocation of AS costs $ 600,000 $ (600,000) 2,400,000 $ 150,000 8,756,000 $ 240,000 12,452,000 $ 24,208,000 210,000 Allocation of IS costs 2,550,000 (2,550,000) 0$ 850,000 9,846,000 $ 1,700,000 14,362,000 $ 24,208,000 Total budgeted overhead of operating departments 0 Step-down method (IS first) Support Departments Operating Departments AS IS GOVT CORP Total Step-down Method Budgeted overhead costs before interdepartment cost allocations $ 600,000 $ 240,000 2,400,000 $ (2,400,000) 8,756,000 $ 720,000 12,452,000 $ 24,208,000 1,440,000 Allocation of IS costs 840,000 $ Allocation of AS costs (840,000) 448,000 392,000 $ 9,924,000 $ 14,284,000 $ 24,208,000 Total budgeted overhead of operating departments i Reference GOVT Direct method Step-down (AS first) Step-down (IS first) 1,120,000 $ 1,090,000 1,168,000 CORP 1,880,000 1,910,000 1,832,000 1. Allocate the two support departments' costs to the two operating departments using the reciprocal method. Use (a) linear equation and (b) repeated iterations. Compare and explain differences in requirement 1 with those of the direct method and the step down method. Which method do you prefer? Why? 2