Support division cost allocation, direct and step-down methods. Phoenix Partners provides management consulting services to government and corporate clients. Phoenix has two support divisions€”Administrative Services (AS) and Information Systems (IS)€”and two operating divisions€”Government Consulting (Govt.) and Corporate Consulting (Corp.).
For the first quarter of 2013, Phoenix€™s cost records indicate the following:

REQUIRED
1. Allocate the two support divisions€™ costs to the two operating divisions using the following methods:
a. Direct method
b. Step-down method (allocate AS first)
c. Step-down method (allocate IS first)
2. Compare and explain differences in the support division costs allocated to each operating division.
3. What approaches might be used to decide the sequence in which to allocate support divisions when using the step-down method?

Support Operating AS IS Govt.CorpTotal Budgeted overhead costs S600,000 S2,400,000 $8,756,000 $12,452,000 S24,208,000 before any interdepartment cost allocations (budgeted head count,) (budgeted computer time) Support work supplied by AS- 25% 40% 35% 100% Support work supplied by IS 1096 30% 60% 100%