Cariman Company is a manufacturer with two production departments (Machining and Assembly) as well as two support departments (Human Resources and Information Services).For the last quarter of 2020, Cariman’s cost records indicate the following:SUPPORT PRODUCTIONHuman Resources (HR)Information Services(IS)MachiningAssemblyTotalBudgeted overhead costs before any inter-department cost allocations$400,000$2,000,000$10,912,000$14,916,000$28,228,000Support work supplied by HR (Number of employees)025%40%35%100%Support work supplied by IS (Processing costs)10%030%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 HR first) c. Step-down method (allocate IS 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?
Cariman Company is a manufacturer with two production departments (Machining and Assembly) as well as two support departments (Human Resources and Information Services).
For the last quarter of 2020, Cariman’s cost records indicate the following:
SUPPORT PRODUCTION
Human Resources (HR)
Information Services
(IS)
Machining
Assembly
Total
Budgeted overhead costs before any inter-department cost allocations
$400,000
$2,000,000
$10,912,000
$14,916,000
$28,228,000
Support work supplied by HR (Number of employees)
0
25%
40%
35%
100%
Support work supplied by IS (Processing 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 HR first)
c. Step-down method (allocate IS 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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