Please include all steps. Also, please include all numbers used to reach solutions.

Phoenix Partners provides management consulting services to government and corporate clients. Phoenix has two support departmentsadministrative services (AS) and information systems (IS)and two operating departmentsgovernment consulting (GOVT) and corporate consulting (CORP). For the first quarter of 2017, Phoenix's cost records indicate the following:

SUPPORT OPERATING

AS IS GOVT CORP Total

Budgeted overhead costs before any interdepartment cost allocations $600,000 $2,400,000 $8,756,000 $12,452,000 $24,208,000

Support work supplied by AS (budgeted head count) 0 25% 40% 35% 100%

Support work supplied by IS (budgeted computer time) 10% 0 30% 60% 100%

The two support departments' costs have been allocated to the two operating departments using the direct method and the step-down method (AS department first) and the step-down method (IS department first). The results of the allocations are as follows:

Support Departments Operating Departments

Direct Method

AS IS GOVT CORP Total

Budgeted overhead costs before interdepartment cost allocations $600,000 $2,400,000 $8,756,000 $12,452,000 $24,208,000

Allocation of AS costs (600,000) 320,000 280,000

Allocation of IS costs (2,400,000) 800,000 1,600,000

Total budgeted overhead of operating departments $0 $0 $9,876,000 $14,332,000 $24,208,000

Support Departments		Operating Departments
Step-down Method	AS	IS	GOVT	CORP	Total
Budgeted overhead costs
before interdepartment cost allocations	$600,000	$2,400,000	$8,756,000	$12,452,000	$24,208,000
Allocation of AS costs	(600,000)	150,000	240,000	210,000
	$0	2,550,000
Allocation of IS costs		(2,550,000)	850,000	1,700,000
Total budgeted overhead of operating departments		$0	$9,846,000	$14,362,000	$24,208,000

Support Departments

Operating Departments

Step-down Method (IS First)

AS IS GOVT CORP Total

Budgeted overhead costs before interdepartment cost allocations $600,000 $2,400,000 $8,756,000 $12,452,000 $24,208,000

Allocation of IS costs 240,000 (2,400,000) 720,000 1,440,000

$840,000 $0

Allocation of AS costs (840,000) 448,000 392,000

Total budgeted overhead of operating departments $0 $9,924,000 $14,284,000 $24,208,000

Reference

GOVT CORP

Direct method $1,120,000 $1,880,000

Step-down (AS first) 1,090,000 1,910,000

Step-down (IS first) 1,168,000 1,832,000

Requirements

1.	Allocate the two support departments' costs to the two operating departments using the reciprocal method. Use (a) linear equation and (b) repeated iterations.
2.	Compare and explain differences in requirement 1 with those of the direct method and the step down method. Which method do you prefer? Why?

Requirement 1a. Allocate the two support departments' costs to the two operating departments using the reciprocal method.

First, determine the linear equations for each support department.

AS=		+
IS=		+