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?
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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.
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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