(Appendix 4B) Sequential Method of Support Department Cost Allocation Stevenson Company is divided into two operating divisions: Battery and Small Motors. The company allocates power and general factory costs to each operating division using the sequential method. General Factory is allocated first in the sequential method for the company. Support department cost allocations using the sequential method 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 7,000 1,000 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: Power General Factory 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 $
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
(Appendix 4B) Sequential Method of Support Department Cost Allocation
Stevenson Company is divided into two operating divisions: Battery and Small Motors. The company allocates power and general
| 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 | 7,000 | 1,000 | |
| 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: | ||||||||||||
| Power | ||||||||||||
| General Factory | ||||||||||||
| 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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