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For the last 7 years, Laramore Corp had one department called the First Step Production Department. Beginning next year, the company is adding a Second Step Production Department to complement the materials produced by the First Step Production Department. As a result, data center costs are expected to increase from $750,000 per year to $1,000,000 per year. The First Step Production Department will use 25% of the data center efforts.
Required:
Problem a. Using the stand-alone cost-allocation method, identify the amount of data center cost that will be allocated to First Step Production and the Second Step Production Department next year.
Problem b. Using the incremental cost-allocation method, identify the amount of data center cost that will be allocated to First Step Production and the Second Step Production Department next year.
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