Requirement 1. What are the total costs of the production departments (for clothing and shoes) after the support department costs of information technology and human resources have been allocated using (a) the direct method, (b) the step-down method (allocate information technology first) (c) the step-down method (allocate human resources first), and (d) the reciprocal method?

(a) Allocate the total Support Department costs to the production departments under the direct allocation method. (Round to the nearest dollar as needed.)

	Clothing	Shoes
Departmental costs
From:
Information Technology
Human Resources
Total Departmental Costs

Part 2

(b) Allocate the Support Department costs to the production departments under the step-down (sequential) allocation method, allocating information technology first. (Round to the nearest dollar as needed. Use parentheses or a minus sign when decreasing allocation costs. Enter a "0" for any amounts that are zero.)

	IT	HR	Clothing	Shoes
Departmental costs
From:
Information Technology
Human Resources
Total Departmental Costs

Part 3

(c) Allocate the Support Department costs to the production departments under the step-down (sequential) allocation method, allocating human resources first. (Round to the nearest dollar as needed. Use parentheses or a minus sign when decreasing allocation costs. Enter a "0" for any amounts that are zero.)

	HR	IT	Clothing	Shoes
Departmental costs
From:
Human Resources
Information Technology
Total Departmental Costs

Part 4

(d) Allocate the Support Department costs to the production departments under the reciprocal allocation method. (Round to the nearest dollar as needed. Use parentheses or a minus sign when decreasing allocation costs. Enter a "0" for any amounts that are zero.)

	IT	HR	Clothing	Shoes
Departmental costs
From:
Information Technology
Human Resources
Total Departmental Costs

Part 5

Requirement 2. Assume that all of the work of the IT department could be outsourced to an independent company for

$95.50

per hour. If

Sterling

no longer operated its own IT department,

25%

of the fixed costs of the IT department could be eliminated. Should

Sterling

outsource its IT services? (Round amounts to the nearest whole dollar.)The cost to

Sterling

of outsourcing is

$enter your response here

while the savings from outsourcing are

$enter your response here,

so on financial grounds alone,

Sterling

should

should not

outsource its IT services.

	Variable Costs	Fixed Costs	Total Costs by Department
Information technology (IT)	$1,300	$3,000	$4,300
Human resources (HR)	700	1,000	1,700
Clothing	4,000	16,000	20,000
Shoes	7,000	10,000	17,000
Total costs	$13,000	$30,000	$43,000

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Department	IT Hours Used	Number of Employees
Clothing	10,050	480
Shoes	7,840	184
Information technology		184
Human resources	5,000

Information technology:	Number of IT labour-hours worked by department
Human resources:	Number of employees supported by department

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