Sequential Method of Support Department Cost Allocation Sequential Method of Sup

Question

Sequential Method of Support Department Cost Allocation

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

Explanation / Answer

Sequential Method of cost allocation:

Calculation of Cost allocation ratio:

Total Cost of General Factory Expenses = $430,000

Total Area in square footage used by the other three department = 1,000 + 5,000 + 15,000 = 21,000

Allocation rate for Power Department = 1,000 / 21,000 = 0.0476

Allocation Rate for Battery Department = 5,000 / 21,000 = 0.2381

Allocation Rate for Small Motors Division = 15,000 / 21,000 = 0.7143

Allocation Ratio for Power:

Battery = 7,000 / 8,500 = 0.8235

Small Motors = 1,500 / 8,500 = 0.1765

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