Course Name: ACCT 3039 - Advanced Managerial Accounting

Problem Set 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:

SUPPORT PRODUCTION

	Materials Requisitions (MR)	Utility Services (US)	Machining	Assembly	Total
Budgeted overhead costs before any inter-department cost allocations	$400,000	$2,000,000	$9,456,000	$13,458,000	$25,314,000
Support work supplied by MR (No. of requisitions)	0	25%	40%	35%	100%
Supportwork supplied by US(Powercosts)	10%	0	30%	60%	100%

Required:

1. Allocate the two support departments' costs to the two operating departments using the followingmethods: A. Direct method (5Marks) B. Step-down method (allocate MR first) (5Marks) C. Step-down method (allocate US first) (5Marks) D. The Algebraic/reciprocal method. (10Marks)
2. Compare and explain differences in the support-department costs allocated to each production department. (20Marks)
3. What approaches might be used to decide the sequence in which to allocate support departments when using the step-down method? (15Marks)

Problem Set 2

Caribu Company produces sanitation products after processing specialized chemicals; The following relates to its activities:

• 1 Kilogram of chemicals purchased for $2000 and with an additional $1000 is processed into 400 grams of Crystals and 80 litres of a Cleaning agent. At split-off, a gram of Crystal can be sold for $1 and the Cleaning agent can be sold for $4 perlitre.
• At an additional cost of $400, Caribu can process the 400 grams of Crystal into 500 grams of Detergent that can be sold for $2 per gram. The 80 litres of Cleaning agent is packaged at an additional cost of $300 and made into 200 packs of Softener that can be sold for $2 perpack.

Required:

1. Allocate the joint cost to the Detergent and the Softener using thefollowing: A. Sales value at split-off method (10Marks) B. NRV method (10Marks)
2. Should Caribu have processed each of the products further? What effect does the allocation method have on this decision? (20Marks)