Cost Management 6th Edition by Edward Blocher,David Stout ,Paul Juras,Gary Cokins

Exercise 28

Departmental Cost Allocation; Outsourcing Levy Company produces two software products (WebX and WebY) in two separate departments (A and B). These products are highly regarded network maintenance programs. WebX is used for small networks and WebY is used for large networks. Levy is known for the quality of its products and its ability to meet dates promised for software upgrades.
Department A produces WebX, and department B produces WebY. The production departments are supported by two support departments, systems design and programming services. The source and use of the support department time are summarized as follows:

The costs in the two service departments are as follows:

Required
1. What are the costs allocated to the two production departments from the two service departments using (a) the direct method, (b) the step method (design department goes first), and (c) the reciprocal method
2. The company is considering outsourcing programming services to DDB Services, Inc., for $45 per hour. Should Levy do this