Question

1. Sequential Method

   Jasmine Company manufactures both pesticide and liquid fertilizer, with each product manufactured in separate departments. Three support departments support the production departments: Power, General Factory, and Purchasing. Budgeted data on the five departments are as follows:

   	Support Departments		Producing Departments
   	Power	General Factory	Purchasing	Pesticide	Liquid Fertilizer
   Overhead	$90,000	$312,000	$165,000	$78,500	$107,700
   Square feet	1,500	—	1,500	4,200	4,800
   Machine hours	—	1,403	1,345	24,000	8,000
   Purchase orders	20	40	—	120	60

   The company does not break overhead into fixed and variable components. The bases for allocation are power—machine hours; general factory—square feet; and purchasing—purchase orders.

   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. Carry out allocation ratios to four decimal places. Use these numbers for subsequent calculations. Round allocated costs to the nearest dollar. If an amount is zero, enter "0".

   Allocation ratios:

   	Power	General Factory	Purchasing	Pesticide	Liquid Fertilizer
   Square feet
   Machine hours
   Purchase orders

   Cost allocation:

   	Power	General Factory	Purchasing	Pesticide	Liquid Fertilizer
   Direct costs	$	$	$	$	$
   General Factory
   Purchasing
   Power
   Total	$	$	$	$	$

   2. Using machine hours, compute departmental overhead rates. (Round the overhead rates to the nearest cent.)

   	Overhead Rates
   Pesticide	$ per machine hour
   Liquid Fertilizer	$ per machine hour

Answer 1

Allocation ratios:
	Power	General Factory	Purchasing	Pesticide	Liquid Fertilizer
Square feet 1500+1500+4200+4800 = 12000 1500/12000	0.125		0.125	0.35	0.4
Machine hours 24000+8000 = 32000 24000/32000				0.75	0.25
Purchase orders	0.1			0.6	0.3
Cost allocation:
	Power	General Factory	Purchasing	Pesticide	Liquid Fertilizer
Direct costs	90,000	312,000	165,000	78,500	107,700
General Factory	39,000	(312,000)	39,000	109,200	124,800
	129,000	-	204,000	187,700	232,500
Purchasing	20,400		(204,000)	122,400	61,200
	149,400	-	-	310,100	293,700
Power	(149,400)			112,050	37,350
Total	-	-	-	422,150	331,050
Overhead Rates
Pesticide	422150/24000	17.59	Per machine hr
Liquid Fertilizer	331050/8000	41.38	Per machine hr