Sequential method of support department cost allocation

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Reference no: EM13867388

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	$

Reference no: EM13867388

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