Problem 7-34 (Algo) Departmental Cost Allocation; Outsourcing [LO 7-1, 7-3]

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Marin Company produces two software products (Cloud-X and Cloud-Y) in two separate departments (A and B). These products are highly regarded network maintenance programs. Cloud-X is used for small networks and Cloud-Y is used for large networks. Marin is known for the quality of its products and its ability to meet dates promised for software upgrades.

Department A produces Cloud-X, and department B produces Cloud-Y. The production departments are supported by two support departments, systems design and programming services. The sources and uses of the support department time are summarized as follows:

From	To				Total Labor Hours
	Design	Programming	Department A	Department B
Design	-	5,000	1,000	9,000	15,000
Programming	400	-	600	1,000	2,000

The costs in the two service departments are as follows:

	Design	Programming
Labor and materials (all variable)	$ 71,000	$ 48,600
Depreciation and other fixed costs	52,600	4,000
Total	$ 123,600	$ 52,600

Part 1 (Algo)

Required:

1. Determine the total support costs allocated to each of the producing departments using (a) the direct method, (b) the step method (design department goes first), and (c) the reciprocal method