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- Illawarra Consultant (IC) provides consultancy services to two types of clients; individuals and corporate client. IC has two support departments: IT Support (IT) and Admin Support (Admin) department. In addition, IC has two operation departments to deal with its two distinct clients named Individual clients and corporate clients department. For the next quarter, the following cost record including budgeted cost of support department to be allocated to operating department is as follows:
| Support Department | Operation Department | ||||
| IT | Admin | Individual | Corporate | Total | |
| Budgeted costs $ | 1,200,000 | 1,500,000 | 7,500,000 | 8,000,000 | 18,200,000 |
| Support work supplied by IT | 20% | 40% | 40% | 100% | |
| Support work supplied by Admin | 20% | 30% | 50% | 100% | |
Required (show your workings):
| (a) | Using the direct method, determine the amount of support department costs that will be allocated to the two operation departments | |
| (b) | Using the step-down method, determine the amount of support department costs that will be allocated to the two operation departments if the IT department is allocated first. | |
| (c) | Compare and explain differences in the support-department allocated to each operation department. |
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