Australian Medical Airlines is a small freight company that distributes medical supplies by air around Australia. It has three support departments; 1) Finance/Accounting, 2) Reservations and Scheduling and 3) IT, and two operating departments; Ground Operations and Flight Operations. The following table outlines the total budgeted cost for each department:

Departments	Cost
Finance/Accounting	$170 000
Reservations and Scheduling	$120 000
Information Technology Services (IT)	$200 000
Ground Operations	$400 000
Flight Operations	$650 000

The following table outlines how much each operating department uses the support department’s services.

	Support Departments			Operations Departments
Support Departments	Reservations and Scheduling	Finance /Accounting	IT	Ground Operations	Flight Operations
Finance /Accounting	20%	0%	40%	30%	10%
Reservations and Scheduling	0%	15%	20%	45%	20%
IT	20%	30%	0%	30%	20%

Required: Prepare a short report to the CFO of Australian Medical Airlines that:

1. Outlines the most accurate total budgeted cost of the two operations departments. 
2. Includes a justification for the cost allocation method that you used above (direct or step down) by comparing it to the alternative methods and why you considered it was most appropriate, and 
3. Identifies two (2) important considerations when communicating these cost calculations to the Head of Ground Operations and the Head of Flight Operations. 

Answer rating: 100% (QA)

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