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Problem 1 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: Budgeted overhead costs before any inter- department cost allocations Support work supplied by MR (Number of requisitions) Support work supplied by US (Power costs) SUPPORT Utility Materials Requisitions Services (US) $1,000,000 $5,456,000 $7,458,000 $14,114,000 (MR) $200,000 0 10% 25% 0 PRODUCTION Machining Assembly Total 40% 30% 35% 60% 100% 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?

Problem 1 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: Budgeted overhead costs before any inter- department cost allocations Support work supplied by MR (Number of requisitions) Support work supplied by US (Power costs) SUPPORT Utility Materials Requisitions Services (US) $1,000,000 $5,456,000 $7,458,000 $14,114,000 (MR) $200,000 0 10% 25% 0 PRODUCTION Machining Assembly Total 40% 30% 35% 60% 100% 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?

Understanding Business
Understanding Business
12th Edition
ISBN:9781259929434
Author:William Nickels
Publisher:William Nickels
Chapter1: Taking Risks And Making Profits Within The Dynamic Business Environment
Section: Chapter Questions
Problem 1CE
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Problem 1 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: Budgeted overhead costs before any inter- department cost allocations Support work supplied by MR (Number of requisitions) Support work supplied by US (Power costs) SUPPORT Utility Materials Requisitions Services (US) $1,000,000 $5,456,000 $7,458,000 $14,114,000 (MR) $200,000 0 10% 25% 0 PRODUCTION Machining Assembly Total 40% 30% 35% 60% 100% 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.
Transcribed Image Text:Problem 1 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: Budgeted overhead costs before any inter- department cost allocations Support work supplied by MR (Number of requisitions) Support work supplied by US (Power costs) SUPPORT Utility Materials Requisitions Services (US) $1,000,000 $5,456,000 $7,458,000 $14,114,000 (MR) $200,000 0 10% 25% 0 PRODUCTION Machining Assembly Total 40% 30% 35% 60% 100% 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?
Transcribed Image Text: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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