In: Accounting
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 | $316,000 | $169,000 | $78,800 | $107,400 |
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 |
1. In direct method cost of supporting department will be allocated directly to operating department based on the number of activity.
Allocation of power based on machine hour
Pesticides = $80000 * 24000 / 32000 = $60000
Liquid fertilizer = $80000*8000/32000 = $20000
Allocation of general factory
Pesticides =$314000*4200/9000 = $146533
Liquid fertilizer = $314000*4800/9000 = $167467
Allocation of purchasing
Pesticides = $169000*120/180 =$112667
Liquid fertilizer = $169000*60/180 =$56333
Calculation of total cost
Particular | pesticides | fertilizer |
Direct costs | $78800 | $107400 |
Power | $60000 | $20000 |
General factory | $146533 | $167467 |
Purchasing | $112667 | $56333 |
Total | $398000 | $351200 |
2. Calculation of department overhead cost
Particulars | pesticides | fertilizer |
Total cost | $398000 | $351200 |
Machine hours | 24000 | 8000 |
Overhead per machine hour | $16.5833 | $43.90 |
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