Marin Company produces two software products (Cloud-X and Cloud-Y) in two separate departments (A and B). These products are highly regarded network maintenance programs. Cloud-X is used for small networks and Cloud-Y is used for large networks. Marin is known for the quality of its products and its ability to meet dates promised for software upgrades.

Department A produces Cloud-X, and department B produces Cloud-Y. The production departments are supported by two support departments, systems design and programming services. The source and use of the support department time are summarized as follows:

The costs in the two service departments are as follows:

Required
1. What are the costs allocated to the two production departments from the two service departments using (a) the direct method, (b) the step method (design department goes first), and (c) the reciprocal method?
2. The company is considering outsourcing programming services to DDB Services, Inc., for $25 per hour. Should Marin do this?

To Total From Design Programming Department A Department B Labor Hours Design Programming 4005000 1,000 600 9,000 1,000 15,000 2,000 Design $50,000 40,000 S90,000 Programming $36,000 4,000 S40,000 Labor and materials (all variable Depreciation and other fixed costs Total