Romero Information Services, Inc., has two service departments: human resources and billing. Romero’s operating departments, organized according to the special industry each department serves, are health care, retail, and legal services. The billing department supports only the three operating departments, but the human resources department supports all operating departments and the billing department. Other relevant information follows. 

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Required

a. Allocate service department costs to operating departments, assuming that Romero adopts the step method. The company uses the number of employees as the base for allocating human resources department costs and department annual revenue as the base for allocating the billing department costs.

b. Allocate service department costs to operating departments, assuming that Romero adopts the direct method. The company uses the number of employees as the base for allocating the human resources department costs and department annual revenue as the base for allocating the billing department costs.

c. Compute the total allocated cost of service centers for each operating department using each allocation method. 

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Human Resources Legal Services Health Retail Care 190 Billing Number of employees Annual cost* Annual revenue *This is the operating cost before allocating service department costs. 20 50 140 $4,800,000 $6,200,000 120 $900,000 $1,710,000 $6,000,000 $9,000,000 $2,800,000 $4,800,000