Sunny's Health Care Facilities has three Revenue Producing Departments and four Non-Revenue Producing departments with the data and costs as follows:

Departments	Costs	Cost Driver
Administration	$500,000	Direct costs
Maintenance	170,000	Square Feet
Purchasing	250,000	Number of Purchase Orders
Dietary	200,000	Number of Meals
Sunny Vale Nursing Home	500,000	Revenue Producing N/A
In-Patient	600,000	Revenue Producing N/A
Out-Patient	410,000	Revenue Producing N/A

Cost Driver Data

Departments	Square feet	Purchase Orders	Meals Served
Administration	1,200	1,600	200
Maintenance	3,000	1,400	100
Purchasing	1,000	1,350	150
Dietary	4,000	1,000	200
Sunny Vale Nursing Home	25,000	1,500	600
In-Patient	11,000	1,300	300
Out-Patient	4,000	2,200	100

Required:

1. Prepare a memo describing and comparing the use of the direct method and the step-down method. Include a recommendation as to which you would use and explain that recommendation.

2. Prepare an Excel spreadsheet:

a. Prepare a Cost report, using the Direct Method.

b. Prepare a Cost Report, using Step-down Method.

i.Prepare the step-down.

ii.Determine the total amount of costs of each of the non-revenue producing departments that would be allocated to each of the revenue producing departments. Prepare a separate table providing this information.