Question 4 (15 marks)

Tropics University offers only high-tech graduate level programs. Tropics has two main operating departments, Engineering and Technology, and two support departments, Facility Maintenance (FM) and Computer Services (CS). The basis used to allocate Facility Maintenance is budgeted maintenance hours. The basis used to allocate Computer Services is budgeted processing hours. The Facility Maintenance budget is $350,000, while the Computer Services budget is $950,000. The following table summarises budgeted costs and usage by each department.

	Support Departments		Operating Departments
	FM	CS	Engineering	Technology Sales
Budgeted costs	$350,000	$950,000	$3.5m	$1.4m
FM supplied support budgeted maintenance hours		1,000	2,000	5,000
CS supplied support budgeted processing hours	2,000		24,000	36,000

Required:

1. Use the direct method to allocate support department costs to the operating departments. (3 marks)

2. Use the step-down method to allocate support department costs to operating departments. (5 marks)

3. Explain and justify which method you would recommend that Tropics University should use to allocate the cost of support departments to operating departments. (7 marks)