is there a specific division within the defense dept,that is responsible for creating service medals ?

Answer 1

It is the Army Institute of Heraldry, in the G-1 section of Army Headquarters and is an assigned function of the Quartermaster Corps. A link to their web site is below.

Answer 2

The manufacture of the medals themselves is contracted out, just like everything else not directly involving destroying the enemy through fire and maneuver.

Answer 3

Creating, or making? Medals are created by Executive Order of the President.

I have no idea on who actually goes through the process of making them. I would think they'd hire someone to do that. The DoD is not a factory.