Donovan Steel has two profit centers: Ingots and Stainless Steel. These profit centers r...

Donovan Steel has two profit centers: Ingots and Stainless Steel. These profit centers rely on services supplied by two service departments: electricity and water. The profit centers’ consumption of the service departments’ outputs (in millions) is given in the following table:

The total operating costs of the two service departments are

Required:

a. Service department costs are allocated to profit centers using the step-down method. Water is the first service department allocated. Compute the cost of electricity per kilowatt-hour using the step-down allocation method.

b. Critically evaluate this allocation method.