(Appendix 48) Direct Method of Support Department Cost AllocationStevenson Company is divided into two operating divisions: Battery and Small Motors. The company allocates power and general factory costs to each operating divisionusing the direct method. Power costs are allocated on the basis of the number of machine hours and general factory costs on the basis of square footage. Supportdepartment cost allocations using the direct method are based on the following data:Support DepartmentsOperating DivisionsGeneralSmallPowerFactoryBatteryMotorsOverhead costs$160,000$430,000 $163,000$84,600Machine hours2,0002,0007,5002,000Square footage1,0001,50010,00020,000Direct labor hours18,00060,000Required:1. Calculate the allocation ratios for Power and General Factory. (Note: Carry these calculations out to four decimal places, if necessary.)PowerGeneral Factory0.8750 XBattery0.8750 XSmall Motors2. 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 inwhich no entry is required, leave the box blank or enter zero ("0").Support DepartmentsOperating Divisions

Lets understand the basics. In direct method of cost allocation, allocation is made from service…

(Appendix 48) Direct 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 direct method. Power costs are allocated on the basis of the number of machine hours and general factory costs on the basis of square footage. Support department cost allocations using the direct method are based on the following data: Support Departments Operating Divisions General Small Power Factory Battery Motors Overhead costs $160,000 $430,000 $163,000 184,600 Machine hours 2,000 2,000 7,500 2,000 Square footage 1,000 1,500 10,000 20,000 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, if necessary.) Power General Factory 0.8750 X Battery 0.8750 X 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

(Appendix 48) Direct 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 direct method. Power costs are allocated on the basis of the number of machine hours and general factory costs on the basis of square footage. Support department cost allocations using the direct method are based on the following data: Support Departments Operating Divisions General Small Power Factory Battery Motors Overhead costs $160,000 $430,000 $163,000 184,600 Machine hours 2,000 2,000 7,500 2,000 Square footage 1,000 1,500 10,000 20,000 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, if necessary.) Power General Factory 0.8750 X Battery 0.8750 X 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

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Sequential (Step) Method of Support Department Cost Allocation Chekov Company has two support departments, Human Resources and General Factory, and two producing departments, Fabricating and Assembly. Direct costs Normal activity: Number of employees Square footage Human Resources General Factory Direct costs Allocate: General Factory Support Departments Human Resources Human Resources Total after allocation $150,000 1,500 The costs of the Human Resources Department are allocated on the basis of number of employees, and the costs of General Factory are allocated on the basis of square footage. Now assume that Chekov Company uses the sequential method to allocate support department costs. The support departments are ranked in order of highest cost to lowest cost. Required: 1. Calculate the allocation ratios (rounded to six significant digits) for the four departments using the sequential method. If an amount is zero, enter "0". Use the rounded values for subsequent calculations. Human…