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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
  Small
Motors
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.

Battery overhead rate $
Small Motors overhead rate

$




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