Check image file for questionQ1a. Allocate the service department costs to the two operating departments using the direct method.b.Allocate the service department cost to the two operating departments using ,I)the step-down method (Allocate administrative service first) . ii)the step down method (Allocoate Maintenance service first)c. Assuming you are the manager of the Daily Patient department.Discuss which method of cost allocation would you prefer.Justify your decisiond.Mr Smith the financial controller of LabAid is convinced that the step-down method allocates more costs to the operating departments than the direct method.Do you agree with ,Mr Smith.Explain. Candidates must answer ONE question from Section A.QUESTION ONELabAid Ltd provides radiological services. Despite the variety of patients seen at LabAid, theradiological services involve only two operating departments (Daily Patient and Radiology) and twoservice departments (Administrative Services and Maintenance Services). For the first quarter of2022, LabAid incurs the following costs in its four departments:DepartmentOverhead costsDaily Patient£350,000Radiology£300,000Administrative Services£50,000Maintenance Services£55,000The actual level of support relationships among the four departments for the first quarter of 202was:Used by Used byAdministrative MaintenanceDailyServicesServicesPatientRadiologySuppliedAdministrative25%40%35%ServicesbyMaintenance Services10%30%60%The Administrative Services support percentages are based on number of employees. TheMaintenance Services support percentages are based on total labour hours.Required:a) Allocate the service department costs to the two operating departments using the directmethod.

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Q1a. Allocate the service department costs to the two operating departments using the direct method. b.Allocate the service department cost to the two operating departments using ,I)the step-down method (Allocate administrative service first) . ii)the step down method (Allocoate Maintenance service first) c. Assuming you are the manager of the Daily Patient department.Discuss which method of cost allocation would you prefer.Justify your decision d.Mr Smith the financial controller of LabAid is convinced that the step-down method allocates more costs to the operating departments than the direct method.Do you agree with ,Mr Smith.Explain.

Q1a. Allocate the service department costs to the two operating departments using the direct method. b.Allocate the service department cost to the two operating departments using ,I)the step-down method (Allocate administrative service first) . ii)the step down method (Allocoate Maintenance service first) c. Assuming you are the manager of the Daily Patient department.Discuss which method of cost allocation would you prefer.Justify your decision d.Mr Smith the financial controller of LabAid is convinced that the step-down method allocates more costs to the operating departments than the direct method.Do you agree with ,Mr Smith.Explain.

Managerial Accounting: The Cornerstone of Business Decision-Making

7th Edition

ISBN:9781337115773

Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Chapter3: Cost Behavior And Cost Forecasting

Section: Chapter Questions

Problem 36E

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