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Refer to the data in Exercise 7.20. The company has decided to use the sequential method of allocation instead of the direct method. The support departments are ranked in order of highest cost to lowest cost. Required: 1. Allocate the overhead costs to the producing departments using the sequential method. (Take allocation ratios out to four significant digits. Round allocated costs to the nearest dollar.) 2. Using machine hours, compute departmental overhead rates. (Round the overhead rates to the nearest cent.)

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Cornerstones of Cost Management (C...

4th Edition
Don R. Hansen + 1 other
Publisher: Cengage Learning
ISBN: 9781305970663

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Chapter
Section
BuyFindarrow_forward

Cornerstones of Cost Management (C...

4th Edition
Don R. Hansen + 1 other
Publisher: Cengage Learning
ISBN: 9781305970663
Chapter 7, Problem 21E
Textbook Problem
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Refer to the data in Exercise 7.20. The company has decided to use the sequential method of allocation instead of the direct method. The support departments are ranked in order of highest cost to lowest cost.

Required:

  1. 1. Allocate the overhead costs to the producing departments using the sequential method. (Take allocation ratios out to four significant digits. Round allocated costs to the nearest dollar.)
  2. 2. Using machine hours, compute departmental overhead rates. (Round the overhead rates to the nearest cent.)

1.

To determine

Allocate the overhead costs to the producing departments suing the sequential method.

Explanation of Solution

Sequential method of allocation: The sequential method of allocation foresees that the interactions between the supports departments occur; conversely the sequential method considers only partial account of this interaction.

Calculation allocation ratio:

 Power

General

Factory

PurchasingPesticide

Liquid

Fertilizer

Square feet (1)0.125(2)0.125(3)0.35(4)0.4
Machine hours (5)0.75(6)0.25
Purchase orders (7)0.1(8)0.6(9)0.3

Table (1)

Calculate assignment of costs:

Figure (1)

Working notes:

(1)Calculate the allocation of square feet to Power department:

Allocationratio of square feet to Power department}=Allocationofsquarefeettopower(Allocationofsquarefeettopower+Allocationofsquarefeettopurchasing+Allocationofsquarefeettopesticide+Allocationofsquarefeettofertilizer)=$1,500$1,500+$1,500+4,200+$4,800=$1,500$12,000=0.125

(2)Calculate the allocation of square feet to Purchasing department:

Allocationratio of square feet to Purchasing department}=AllocationofsquarefeettoPurchasing(Allocationofsquarefeettopower+Allocationofsquarefeettopurchasing+Allocationofsquarefeettopesticide+Allocationofsquarefeettofertilizer)=$1,500$1,500+$1,500+4,200+$4,800=$1,500$12,000=0.125

(3)Calculate the allocation of square feet to Pesticide department:

Allocationratio of square feet to Pesticide department}=AllocationofsquarefeettoPesticide(Allocationofsquarefeettopower+Allocationofsquarefeettopurchasing+Allocationofsquarefeettopesticide+Allocationofsquarefeettofertilizer)=$4,200$1,500+$1,500+4,200+$4,800=$4,200$12,000=0.35

(4)Calculate the allocation of square feet to Liquid fertilizer department:

Allocationratio of square feet to Liquidfertilizer department}=Allocationofsquarefeetto Liquidfertilizer(Allocationofsquarefeettopower+Allocationofsquarefeettopurchasing+Allocationofsquarefeettopesticide+Allocationofsquarefeettofertilizer)=$4,800$1,500+$1,500+4,200+$4,800=$4,800$12,000=0

2.

To determine

Calculate departmental overhead rates using machine hours.

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Chapter 7 Solutions

Cornerstones of Cost Management (Cornerstones Series)
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