Tampa Instrument Company manufactures gauges for construction machinery. The company has two production departments: Machining and Assembly. There are three service departments: Maintenance, Human Resources (HR), and Computer Aided Design (CAD). The usage of these service departments' output during the year just completed is as follows:

Provision of Service Output (in hours of service)Provider of ServiceUser of ServiceHRMaintenanceCADHRMaintenance500CAD500500Machining3,0003,0004,000Assembly6,0003,5001,000Total10,0007,0005,000

The budgeted costs in Tampa Instrument Company's service departments during the year are as follows:

HRMaintenanceCADVariable$61,000$89,000$61,000Fixed280,000210,000400,000Total$341,000$299,000$461,000

When Tampa Instrument Company established its service departments, the following long-run needs were anticipated.

Long-Run Service Needs (in hours of service)Provider of ServiceUser of ServiceHRMaintenanceCADHRMaintenance1,000CAD1,5001,000Machining3,5004,0004,800Assembly4,0002,000200Total10,0007,0005,000

Required:

Use dual cost allocation in conjunction with each of the following methods to allocate Tampa Instrument Company's service department costs: (1) direct method and (2) step-down method.

Problem 17-25 Part 2

2.Step-down method combined with dual allocation.

a.Variable costs

b.Fixed costs

c.Total costs allocated