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Sequential method of support department cost allocation
Course:- Managerial Accounting
Reference No.:- EM13867388

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Sequential Method of Support Department Cost Allocation

Stevenson Company is divided into two operating divisions: Battery and Small Motors. Assume that Stevenson uses the sequential method to allocate support department costs to the operating divisions. Power costs are allocated on the basis of the number of machine hours and general factory costs on the basis of square footage. General Factory is allocated first in the sequential method for the company. Support department cost allocations are based on the following data:

 Support Departments Operating Divisions Power General Factory Battery Small Motors Overhead costs \$160,000 \$430,000 \$163,000 \$84,600 Machine hours 2,000 2,000 8,000 2,000 Square footage 1,000 1,500 5,000 15,000 Direct labor hours 18,000 60,000

Required:

1.  Calculate the allocation ratios for Power and General Factory. (Note: Carry these calculations out to four decimal places.)

Allocation ratios for General Factory

 Power Battery Small Motors

Allocation ratios for Power

 Battery Small Motors

2.  Allocate the support service costs to the operating divisions. Round all amounts to the nearest dollar. Use a minus sign to indicate a subtraction. For those boxes in which no entry is required, leave the box blank or enter zero ("0").

 Support Departments Operating Divisions Power General Factory Battery SmallMotors Direct costs \$ \$ \$ \$ Allocate: General Factory Power Total \$ \$ \$ \$

3.  Assume divisional overhead rates are based on direct labor hours. Calculate the overhead rate for the Battery Division and for the Small Motors Division. Round overhead rates to the nearest cent.