Question 2 Sherry Boats ("SB") manufactures small boats. It has three support departments: X, Y and Z, and two operating departments: J and R. Its support departments provide services to other support and operating departments. Their usage is captured in the following table. Provider of service Dept X Dept Y Dept Z Dept Overhead Costs $300,000 |$200,000 $400,000 Use of Service Dept X 5% Service Depts Dept Y - 20% Dept Z 20% Dept J 30% 25% 20% Operating Depts Dept R 70% 50% 60% SB uses the step down method to allocate support department costs to operating departments, and a plant wide method based on direct labour hours to allocate manufacturing overheads to products. Each operating department manufactures separate line of products. SB prices its products on cost plus mark-up basis. Required: (a) (i) Jerry, the cost accountant, believes department Z should be allocated first as it has the highest support department costs. Without performing any calculations explain if Jerry is correct. (5 marks) (ii) Ignoring your answer in part (i), calculate the support department costs allocated to each of the operating departments J and R; by using the step down method beginning with department Y, followed by department Z, and department X. Provide your final answer to the nearest dollar. (14 marks) (b) Without performing any calculations, explain if using step down approach will lead to more accurate costing for SB than using the direct or reciprocal methods to allocate support department costs. (6 marks)