The Moore Company has two products. Product 1 is manufactured entirely in department X. Product 2 is manufactured entirely in department Y. To produce these two products, the Moore Company has two support departments: A (a materials-handling department) and B (a power-generating department). An analysis of the work done by departments A and B in a typical period follows.

		Used by
Supplied by		A		B		X		Y
A				420		1,050		630
B		3,000				500		1,500

The work done in department A is measured by the direct labour-hours of materials-handling time. The work done in department B is measured by the kilowatt-hours of power.

The budgeted costs of the support departments for the coming year are as follows.

REQUIRED

1.	What are the allocations of costs of support departments A and B to operating departments X and Y using (a) the direct method, (b) the step-down method (allocate department A first), (c) the step-down method (allocate department B first), and (d) the reciprocal method (use the linear equation method)?
2.	An outside company has offered to supply all the power needed by the Moore Company and to provide all the services of the present power department. The cost of this service will be $85 per kilowatt-hour of power. Should Moore accept? Explain.

Budgeted costs of support departments Department A (Materials Handling) Department B (Power Generation) $ $ Variable indirect labour and indirect material costs Supervision Depreciation 330,000 99,000 33,000 31,200 52,000 100,000 $ 462,000 $ 183,200 + Power costs + Materials-handling costs The budgeted costs of the operating departments for the coming year are $2,600,000 for department X and $2,000,000 for department Y. Supervision costs are salary costs. Depreciation in department B is the straight-line depreciation of power-generation equipment in its 19th year of an estimated 25-year useful life; it is old, but well maintained, equipment