Donovan Steel has two profit centers: Ingots and Stainless Steel. These profit centers rely on services supplied by two service departments: electricity and water. The profit centers€™ consumption of the service departments€™ outputs (in millions) is given in the following table:

The total operating costs of the two service departments are
Electricity $ 80 million Water 60 million Total cost $ 140 million

Required:
a. Service department costs are allocated to profit centers using the step- down method. Water is the first service department allocated. Compute the cost of electricity per kilowatt- hour using the step- down allocation method.
b. Critically evaluate this allocationmethod.

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Service Departments Profit Centers Service DepartmentsElecriciyWater Ingots 3,000 kwh Stainless Steel 2,000 kwh Total 10,000 kwh Electricity Water 2,500 kwh 1,000 gal 2,500 kwh 800 gal. 000ga. 2000 gal 4,800 gal.