Budgeted overhead costs before any inter- department cost allocations Support work supplied by MR (Number of requisitions) Support work supplied by US (Power costs) Materials Utility Requisitions Services (US) $1,000,000 SUPPORT (MR) $200,000 0 10% 25% 0 Machining Assembly Total PRODUCTION $5,456,000 $7,458,000 40% 30% 35% 60% $14,114,000 100% 100%
Carica Company is a manufacturer with two production departments (Machining and
Assembly) as well as two support departments (Materials Requisitions and Utility Services).
For the last quarter of 2020, Carica’s cost records indicate the following:
Required:
1. Allocate the two support departments’ costs to the two operating departments using the
following methods:
a. Direct method
b. Step-down method (allocate MR first)
c. Step-down method (allocate US first)
d. The Algebraic method.
2. Compare and explain differences in the support-department costs allocated to each
production department.
3. What approaches might be used to decide the sequence in which to allocate support
departments when using the step-down method?
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