Tanner Company produces two software products (NetA and NetB) in two separate departments (A and B). These products are highly regarded network maintenance programs. NetA is used for small networks and NetB is used for large networks. Tanner is known for the quality of its products and its ability to meet dates promised for software upgrades. Department A produces NetA, and department B produces NetB. The production departments are supported by two support departments, systems design and programming services. The source and use of the support department time are summarized as follows: To From Design Total Labor-hours Programming Department A Department B 4,000 Design Programming 400 2,000 400 10,000 800 16,000 1,600 The costs in the two service departments are as follows: Labor and materials (all variable) Depreciation and other fixed costs Total Design $30,000 38,000 $68,000 Programming $25,000 29,000 $54,000 The costs incurred in the production departments are as follows: Department A Department B $116,000 $420,000 Required 1. What are the costs allocated to the production departments from the two service departments using the step method (design department goes first). (6 points) 2. The company is considering outsourcing programming services to DDB Services, Inc., for $25 per hour. Should Tanner do so? Discuss the disadvantages of Tanner's decision to outsource the programming services to DDB Services. 4 points) 3. What are the total costs in the production departments after allocation? (2 points) 4. Give three examples of the use of cost allocation in service industries and not-for- profit organizations. (3 points)