Question 1 Support Department's Cost Allocation Nano Limited manufactures two products The production of Product 1 is entirely carried out in the Green department TheentireproductionofProduct2takesplaceintheYellowdepartment NanoLimitedisable to produce these two products with the help of two support departments Brick (a materials handling department) and Hebel (a power generatingdepartment) An analysis of the work done by departments Brick and Hebel in a typical period follows Used By Supplied By Brick Hebel Green Yellow Brick 100 250 150 Hebel 500 100 400 IntheBrickdepartment,theworkthatisdoneismeasuredbythedirectlabour hoursspentonthehandling ofmaterials IntheHebeldepartment,theworkdoneismeasuredbythekilowattsofpowerthatareused For the coming year, the following budgeted costs have been outlined for the supportdepartments Brick Department (Materials Handling) Hebel Department (Power Generation) Variable indirect labour and indirect materials costs $ 70,000 $10,000 Supervision 10,000 10,000 Depreciation 20,000 20,000 $100,000 $40,000 Power costs Materials handling costs For the coming year, the budgeted costs of the operating departments are $1,500,000 for the Green department and $800,000 for the Yellow department The cost of supervision is a salary cost In Hebel department, depreciation is calculated based on straight line depreciation of power generation equipment which has reached its 19th year of its estimated 25 year useful life This is an old, but well maintained piece of equipment Required What is the allocation of costs of support departments Brick and Hebel to operating departments Green and Yellow Use the following methods to report yourresults the directmethod, the step down method (allocate department Brickfirst) the reciprocalmethod There is an outside company that has offered to supply all the power required by the Nano Limited and to provide all the services that are currently provided by the Nano Limited's power department There will be a fee of $40 per kilowatt hour of power that will be charged for this service Do you think Nano should accept the offer Explain and justify youranswer

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Question 1: Support Department's Cost Allocation Nano Limited manufactures two products. The production of Product 1 is entirely carried out in the Green department.TheentireproductionofProduct2takesplaceintheYellowdepartment.NanoLimitedisable to

Question 1: Support Department's Cost Allocation

Nano Limited manufactures two products. The production of Product 1 is entirely carried out in the Green department.TheentireproductionofProduct2takesplaceintheYellowdepartment.NanoLimitedisable to produce these two products with the help of two support departments: Brick (a materials-handling department) and Hebel (a power-generatingdepartment).

An analysis of the work done by departments Brick and Hebel in a typical period follows:

	Used By
Supplied By	Brick	Hebel	Green	Yellow
Brick	-	100	250	150
Hebel	500	-	100	400

IntheBrickdepartment,theworkthatisdoneismeasuredbythedirectlabour-hoursspentonthehandling ofmaterials.IntheHebeldepartment,theworkdoneismeasuredbythekilowattsofpowerthatareused. For the coming year, the following budgeted costs have been outlined for the supportdepartments:

	Brick Department (Materials Handling)	Hebel Department (Power Generation)
Variable indirect labour and indirect materials costs	$ 70,000	$10,000
Supervision	10,000	10,000
Depreciation	20,000	20,000
	$100,000	$40,000
	+Power costs	+Materials-handling costs

For the coming year, the budgeted costs of the operating departments are $1,500,000 for the Green department and $800,000 for the Yellow department.

The cost of supervision is a salary cost. In Hebel department, depreciation is calculated based on straight- line depreciation of power-generation equipment which has reached its 19th year of its estimated 25-year useful life. This is an old, but well-maintained piece of equipment.

Required

What is the allocation of costs of support departments Brick and Hebel to operating departments Green and Yellow? Use the following methods to report yourresults.
1. the directmethod,
2. the step-down method (allocate department Brickfirst)
3. the reciprocalmethod

There is an outside company that has offered to supply all the power required by the Nano Limited and to provide all the services that are currently provided by the Nano Limited's power department. There will be a fee of $40 per kilowatt-hour of power that will be charged for this service. Do you think Nano should accept the offer? Explain and justify youranswer.