Question: Support-department cost allocations; direct, step-down, and reciprocal methods. Ballantine Corporation has two operating departments: Eastern Department and Western Department. Each of the operating departments uses the services of the company's two support departments: Engineering and Information Technology. Additionally, the Engineering and Information Technology departments use the services of each other. Data concerning the past year are as follows:
1. What are the total overhead costs of the operating departments (Eastern and Western) after the support-department costs of Engineering and Information Technology have been allocated using
(a) the direct method,
(b) the step-down method (allocate Engineering first),
(c) the step-down method (allocate Information Technology first), and
(d) the reciprocal method?
2. Which method would you recommend that Ballantine Corporation use to allocate service-department costs? Why?