XY is a manufacturing firm. It has three support departments: A, B and C, and three operating departments: P, Q and R. Its support departments provide services to both other support and operating departments. Their usage is captured in the following table:

XY uses the step down method to allocate support department costs to operating departments, and a plant wide method based on machine hours to allocate manufacturing overheads to products. Each operating department manufactures a line of products. XY prices its products on a cost plus mark-up basis.

Required:

i) Calculate the support department costs allocated to each of the operating departments P, Q and R; by using the step down method beginning with department C, followed by department A, and finally B. Provide your final answer to the nearest dollar.

ii) Without performing any calculations, briefly explain if the overall profit of XY will change if XY uses the direct method to allocate support department costs instead.

Usage by Support Departments Operating Departments Q A . P R $114,000 $179,000 $130,000 Departmental Overhead Costs Support Department A 20% 20% 20% 20% 30% B 20% 20 30% 20% 20% 20% 20% 20% 20%