(a) Explain which support unit should be allocated first in a step down approach.

(b) Ignoring your answer in (a), allocate support costs using the step-down method beginning with Admin.

(c) Bob, General Manager of East, believes that CCL should allocate support cost using the direct method because using step down approach makes his services less price competitive. Briefly explain if Bob is correct (show workings to support your explanations).

Covid Clean Ltd ("CCL") is a small and medium enterprise which specialises in cleaning services. It has two support units: Human Resources ("HR") and Admin; and three operating units: East, West and North. HR currently provides services to Admin, and vice versa. CCL currently uses the step-down method to allocate its support units' costs. The company prices all its services using a cost-plus basis. The HR and Admin costs are allocated based on number of employees and floor area of site offices respectively. The following information is available for the cost allocation exercise