Task 3c Inter service department cost allocation Pano has a branch that makes pastries. It consists of two production departments, "Processing" (Po) and "Freezing" (F), and two service departments. The processing department converts all necessary ingredients into the pastries. The pastries are then deep-frozen and packaged for delivery in the freezing department. The service departments are a technical department (T) giving technical services and a purchasing department (Pu) that buys all raw materials. The controller of the branch wonders how the costs of the service departments should be allocated to the production departments. He first chooses an allocation base, "square meters" for the costs of T and "amount of purchases" for Pu. The total costs to allocate are 3.100.000 for the technical department and 500.000 for the Purchasing department. The controller then notices that there are four ways to allocate the service departments' costs. The relevant numbers are as follows: Floor space (m2) - allocation base T Purchasing: 8.000 m2 Processing: 3.000 m2 Freezing: 7.000 m2 Material purchases () - allocation base Pu Technical: 200.000 Processing: 50.000 Freezing: 150.000 After the calculations, he wonders which method to choose or whether it matters at all. Moreover, he is considering what the potential consequences for decision making might be of differences in the way costs are allocated. He further wonders whether any of these calculations help re-evaluate the outsourcing proposal that was rejected a month ago by general management. The content of the outsourcing proposal was that an external party offered to deliver all of the same procurement services as Pu currently delivers at a total price of 2,000,000. Answer the following questions: 1. Which methods of service department cost allocation exist and what are the results of these different methods? 2. What are the potential consequences of differences in the way costs are allocated? 3. Should the outsourcing proposal be accepted