QUESTION 4: Cost Allocation [15 Marks]

Express Post Airlines is a small freight company that delivers parcels and letters by air around Australia. It has three support departments; 1) Finance/Accounting, 2) Flight 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	$70 000
Flight Scheduling	$120 000
Information Technology Services (IT)	$160 000
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	Flight 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 Express Post Airlines that:

1. Outlines the most accurate total budgeted cost of the two operations departments. [10 marks]
2. Includes a justification for the cost allocation method that you used in part (1) (direct or step down) by comparing it to the alternative methods and why you considered it was most appropriate [5 marks]