1. Allocate the support departments' costs to the operating departmens using the direct method. 2. Rank the support departments based on the % of their services provided to other support departments. Use this ranking to allocate the support departments' costs to the operating departments based on the step-down method.3. How could you have ranked teh support departments differently? **Transcription and Explanation for Educational Website:**---**Tech Books, Inc. - Cost Allocation Using the Direct Method**Tech Books, an online book retailer, operates with two primary departments—corporate sales and consumer sales—as well as two support departments—human resources (HR) and information systems (Info. Systems). Each sales department manages its own merchandising and marketing independently. The company uses the number of employees to allocate human resources costs and processing time to allocate information systems costs. The following data pertains to September 2020.**Data Access:**- Click the icon to view the detailed data.**Instructions:**- Read the full requirements before proceeding.**Requirement 1: Cost Allocation**You are tasked with allocating costs from the support departments to the operating departments using the direct method. - **Note:** Do not perform intermediary rounding. Input rounded figures to the nearest dollar only in the final result. Use parentheses or a minus sign to indicate any decreases in department allocations. Enter "0" for zero balances.**Department Abbreviations:**- HR = Human Resources- Info. = Information**Table: Support and Operating Department Costs**| | Support Departments | Operating Departments | ||---------------------------|---------------------|-----------------------|-------------|| | HR | Info. Systems | Corporate | Consumer | Total || Costs incurred | $20,000 | $320,000 | $990,000 | $485,000 | $1,815,000 || Allocation of HR costs | | | | | || Allocation of Info. costs | | | | | || Total budgeted costs of operating departments | | | | |- **Explanation of Table:** The table presents an initial overview of costs incurred in each department. The total costs amount to $1,815,000. Your task is to correctly allocate these support department costs (HR and Info. Systems) to the corporate and consumer operating departments using the direct method.---This text will guide users in understanding the allocation process using accounting principles, fostering a clear comprehension of departmental budgeting. **Data Table**This table outlines the budgeted costs and support work data for different departments within a company. The departments are divided into Support Departments and Operating Departments.**Columns:**- **Column A:** Describes the type of data.- **Columns B-E:** Represent various departments: - **Support Departments:** - Column B: Human Resources - Column C: Information Systems - **Operating Departments:** - Column D: Corporate Sales - Column E: Consumer Sales**Rows:**1. Header Row: Indicates the department type.2. **Row 2:** - Budgeted costs incurred before any interdepartmental cost allocations - Human Resources: $20,000 - Information Systems: $320,000 - Corporate Sales: $990,000 - Consumer Sales: $485,0003. **Row 4:** - Support work supplied by the Human Resources department5. **Row 5:** - Budgeted number of employees - Information Systems: 30 - Corporate Sales: 49 - Consumer Sales: 216. **Row 6:** - Support work supplied by the Information Systems department7. **Row 7:** - Budgeted processing time (in minutes) - Human Resources: 240 - Corporate Sales: 2,000 - Consumer Sales: 1,760This table can be useful for understanding the allocation of costs and support resources across different functional areas within an organization.

Allocation of costs means identifying, aggregating and assigning costs to various departments on some fixed basis. Budgeted cost is the total expected cost of a department for a definite period which is required to measure the actual performance of the respective period. 1. The direct method allocates the cost of support departments to operating departments. Inter-allocation of cost among service departments is not allowed. Support Departments Operating departments HR Information Systems Corporate Consumer Total Costs incurred 20,000 320,000 990,000 485,000 1,815,000 Allocation of HR costs[49/70 and 21/70]*20,000 -20,000 14,000 6,000 0 Allocation of info system costs[2000/3760 and 1760/3760]*320,000 -320,000 170,213 149,787 0 0 0 1,174,213 640,787 1,815,000 2. Step-down approach allocates the cost of the department based on the highest-ranking of services to other services departments. In this approach, inter-allocation is possible. Ranking on the percentage of services rendered to other departments. HR to information systems = 30/(30+49+21) =30% Hence HR provides 30% of 20,000 = $6,000 services to information systems Information systems to HR = 240/(240+2000+1760) = 6% Hence, Information systems provides 6% of 320,000 = $19200 to HR As the percentage is greater from HR to information systems, the first allocation shall be done similarly. Support Departments Operating departments HR Information systems Corporate Consumer Total Costs incurred 20,000 320,000 990,000 485,000 1,815,000 Allocation of HR costs30/100, 49/100 and 21/100 (20,000) 6,000 9,800 4,200 - - 326,000 999,800 489,200 1,815,000 Allocation of info system costs2000/3760 and 1760/3760 (326,000) 173,404 152,596 - - - 1,173,204 641,796 1,815,0003. The alternative approach would be the reverse of steps in requirement 2. Information systems are ranked first alternatively based on higher dollar value than that of HR. a. Allocate information systems $19200 to HR First b. Then allocate HR’s cost of $6,000 to the information department.