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. Compare and explain differences in the support-department costs allocated to each production department

. Compare and explain differences in the support-department costs allocated to each production department

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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2. Compare and explain differences in the support-department costs allocated to each production department.
Problem 1 Caris 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, Caris'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) Materials Requisitions SUPPORT (MR) $400,000 0 10% Utility Services (US) $2,000,000 $9,456,000 $13,458,000 $25,314,000 25% 0 PRODUCTION Machining Assembly Total 40% 30% 35% 60% 100% 100%
Transcribed Image Text:Problem 1 Caris 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, Caris'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) Materials Requisitions SUPPORT (MR) $400,000 0 10% Utility Services (US) $2,000,000 $9,456,000 $13,458,000 $25,314,000 25% 0 PRODUCTION Machining Assembly Total 40% 30% 35% 60% 100% 100%
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What approaches might be used to decide the sequence in which to allocate supportdepartments when using the step-down method?

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Prepare the following

a. Direct method 
b. Step-down method (allocate MR first) 
c. Step-down method (allocate US first) 
d. The Algebraic/reciprocal method.

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