Devon allocates support department costs using the direct method and estimated costs. The support department costs are budgeted at $88,000 for Department A, $63,000 for Department B, and $40,000 for Department C. These costs are allocated using the proportion of total cost the firm would pay to an outside service provider:

	Support Departments			Operating Departments
	Dept. A	Dept. B	Dept. C	Casting	Machine
Direct costs	$88,000	$63,000	$40,000	-	-
Labour hours				6,000	4,000
Machine hours				2,000	10,000
Costs if support services were purchased externally:
Department A				$50,000	$60,000
Department B				$40,000	$20,000
Department C				$30,000	$30,000

REQUIRED

A.

Allocate budgeted support department costs using the direct method, first using labour hours and then with the outside cost proportions as the allocation bases. (please show how you got the asnwers)

B.

Could Devon use the cost of purchasing externally as an efficiency benchmark for the cost of both the support departments and the user departments? List several advantages and disadvantages of this approach.