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
Operating Divisions
Departments
General
Small
Power
Factory
Battery
Motors
$160,000
$430,000
$163,000
$84,600
Machine hours
2,000
2,000
7,000
1,500
Square footage
1,000
1,500
5,000
15,000
18,000
60,000
Overhead costs
Direct labor hours
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
.0476
.2381
.7143
Allocation ratios for Power
Battery
Small Motors
.8235
.1765
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
Small
Power
$
General Factory
$
160,000
Direct costs
Battery
$
430,000
Motors
$
163,000
84,600
Allocate:
-430,000
General Factory
Power
$
Total
$
0
$
0
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
$
