Cost Management: A Strategic Emphasis 7th Edition by Edward Blocher,David Stout ,Paul Juras,Gary Cokins

Exercise 13

Departmental Cost Allocation; Outsourcing Marin Company produces two software products (Cloud-X and Cloud-Y) in two separate departments (A and B). These products are highly regarded network maintenance programs. Cloud-X is used for small networks and Cloud-Y is used for large networks. Marin is known for the quality of its products and its ability to meet dates promised for software upgrades.
Department A produces Cloud-X, and department B produces Cloud-Y. 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 $25 per hour. Should Marin do this