Question

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	$80,000	$312,000	$165,000	$78,500	$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

Answer 1

Answer is as per tables below :

Rank as per highest Over head cost to lowest =

Rank 1 : General Factory

Rank 2 : Purchasing

Rank 3 : Power

Allocation Basis :
	General Factory	Purchasing	Power
Purchasing	1500 sq feet = 25/200	-	-
Power	1500 sq feet = 25/200	20 P.O. =1/10	-
Pesticide	4200 sq feet = 70/200	120 P.O. = 6/10	24000 MH = 3/4
Liquid Fertilizer	4800 sq feet = 80/200	60 P.O. = 3/10	8000 MH = 1/4
Total	12000 sq feet = 200/200	200 P.O. = 10/10	32000 MH = 4/4

Answer 1.
Allocation ratios:
	Power	General Factory	Purchasing	Pesticide	Liquid Fertilizer
Square feet	0.1250	-	0.1250	0.3500	0.4000
Purchase orders	0.1000	-	-	0.6000	0.3000
Machine hours	-	-	-	0.7500	0.2500
Cost allocation:
	Power	General Factory	Purchasing	Pesticide	Liquid Fertilizer
Direct costs	80,000	312,000	165,000	78,500	107,400
General Factory	39,000	(312,000)	39,000	109,200	124,800
Purchasing	20,400	-	(204,000)	122,400	61,200
Power	(139,400)	-	-	104,550	34,850
Total	-	-	-	414,650.00	328,250.00

Answer 2.
	Overhead Rates	Overhead Cost (a)	Machine Hours (b)	Overhead Rates (a/b)
Pesticide	$ per machine hour	414,650	24,000	17.2771
Liquid Fertilizer	$ per machine hour	328,250	8,000	41.0313