5. Service department costing (5 marks) Top2 is a boutique store that sells high-fashion hats and shoes in the downtown section of the city. The companys controller assesses the manager of each department on their ability to control costs. As such, he wants to properly allocate the cost of their two major service departments; Janitorial and Human resources to their two sales departments, Shoes and Hats.

Note that Janitorial and Human resources also provide services to each other. Janitorial costs are allocated by square feet and Human resources costs are allocated by number of employees. Data for August are provided below.

August data	Human resources	Janitorial	Shoes	Hats
Budgeted costs	$13,800	$6,400	$40,000	$31,500
Actual costs	$14,300	$5,800	$52,000	$29,500
Actual square feet of department	612	1,200	1,088	1,700
Actual number of employees	10	21	15	24

Currently, the controller uses the Step method to allocate service department costs to operating departments. Human resources is allocated first, then Janitorial.

Required

1. Calculate the costs of the Janitorial department that would be allocated to the Shoes Department for August using the appropriate figures and the controllers current method of service department cost allocation. (3 marks)
2. The controller is aware of the direct and reciprocal methods and wants to know if he should use one of those methods instead of the step method. You do a quick analysis of both methods which results in the following allocations: (2 marks)

Total cost of service department costs allocated using:	Shoes	Hats
Direct method	$7,805	$12,394
Reciprocal method	$7,825	$12,375

Explain which method should be used and why. (2 marks)