Broadway Motors allocates the maintenance and human resources department costs to the parts department, sales department and the service garage. Human resources and maintenance also provide services to each other. Human resources costs are allocated by number of employees. Maintenance costs are allocated based on square footage. Costs and other information for the month of March were as follows:

	Human Resources	Maintenance	Parts	Sales	Total
Budgeted Overhead Costs	$300,000	$500,000	$250,000	$400,000	$1,450,000
Number of Employees		7	8	10
Square footage	2,000		5,000	3,000

Required:

1. Allocate service costs using the step-down method. Allocate the human resources department first. Determine total amount of cost for Parts and Sales (12 marks ).

2. Allocate service costs using the direct method.(8 marks)

3. Allocate service costs using the reciprocal method.Do not allocate to Parts and Sales.

a. Provide the formulas for the reciprocal relationships (2 marks)

b. Solve for amounts for Human Resources and Maintenance (2 marks)

4. explain why a company may use direct method, step method or reciprocal method (6 marks)

5. explain value added and non-value added costs.(5 marks)