Kenan Mortgage Company has two service departments (human resources and accounting) and two production departments (commercial lending and consumer lending) that relate to its mortgage writing and servicing business. The following data are available from last year.

The costs of the HR department are allocated on the basis of the number of employees in each department, while the costs of the Accounting department are allocated on the basis of the number of financial transactions processed in each department.

Required
A. Assuming that Kenan Mortgage Company allocates service department costs by the direct method, how much overhead would be allocated from each service department to each producing department?
B. Assuming that Kenan Mortgage Company allocates service department costs by the step-down method, starting with the HR Department, how much overhead would be allocated from each service department to each producingdepartment?

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Production Departments Accounting Commercial Consumer $600,000 Service Departments HR Department costs Number of employees Number of transactions $300,000 $240,000 $800,000 19 1,200 800 200 2,000