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: SUPPORT PRODUCTION Materials Requisitions (MR) Utility Services (US) Machining Assembly Total Budgeted overhead costs before any inter- department cost allocations $200,000 $1,000,000 $5,456,000 $7,458,000 $14,114,000 Support work supplied by MR (Number of requisitions) 0 25% 40% 35% 100% Support work supplied by US (Power costs) 10% 0 30% 60% 100% 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?
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: SUPPORT PRODUCTION Materials Requisitions (MR) Utility Services (US) Machining Assembly Total Budgeted overhead costs before any inter- department cost allocations $200,000 $1,000,000 $5,456,000 $7,458,000 $14,114,000 Support work supplied by MR (Number of requisitions) 0 25% 40% 35% 100% Support work supplied by US (Power costs) 10% 0 30% 60% 100% 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?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
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:
SUPPORT PRODUCTION
Materials
Requisitions
(MR)
Utility
Services
(US)
Machining Assembly Total
Budgeted
overhead costs
before any inter-
department cost
allocations
$200,000 $1,000,000 $5,456,000 $7,458,000 $14,114,000
Support work
supplied by MR
(Number of
requisitions)
0 25% 40% 35% 100%
Support work
supplied by US
(Power costs)
10% 0 30% 60% 100%
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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Step 1: What is cost allocation
VIEWStep 2: Allocate cost of support departments to operating departments by direct method
VIEWStep 3: Allocate cost of support departments to operating departments by step method (allocate MR first)
VIEWStep 4: Allocate cost of support departments to operating departments by step method (allocate MS first)
VIEWStep 5: Allocate cost of support departments to operating departments by algebraic method
VIEWStep 6: Compare support department costs allocated to production departments
VIEWStep 7: Decide the sequence to allocate costs under step-down method
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