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 interdepartment $200,000 1,000,000 5,456,000 7,458,000 $14,114,000

cost allocations

Support work supplied by MR 0 25% 40% 35% 100%

(Number of requisitions)

Support work supplied by US 10% 0 30% 60% 100%

(Power costs)

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?