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Support Department Cost Allocation Using the Step or Sequential Method The step or sequential method requires...

Support Department Cost Allocation Using the Step or Sequential Method

The step or sequential method requires that support departments be ranked and that the highest ranking support department be allocated first to all lower ranking support departments and the producing departments. Then the highest ranking support department is closed and the second-highest ranking support department is allocated to lower ranking support departments and the producing departments. This continues until all support department cost has been allocated to the producing departments. The sequential method takes account of support department reciprocity. Reciprocity occurs when one support department uses the services of another support department. For example, Maintenance uses HR and HR may use the services of Maintenance. The sequential method does not take full account of reciprocity because lower ranking support department costs are allocated to higher ranking support departments.

Let's use Porter Company, as an example. Porter has two producing departments (Fabricating and Assembly) and three support departments (Maintenance, Human Resources (HR) and General Factory (GF)). Porter provided the following information on the five departments:

Maintenance HR GF Fabricating Assembly
Direct overhead cost $80,000 $120,000 $260,000 $93,400 $56,700
Machine hours 1,000 3,000 5,000 12,000 3,000
Direct labor hours 4,000 5,000 8,000 10,000 30,000
Square footage 500 2,500 10,000 12,000 18,000

Porter uses the sequential method of support department cost allocation, and support departments are ranked in order of direct overhead cost (from high to low). Maintenance is allocated based on machine hours, HR on direct labor hours, and GF on the basis of square footage. The Fabricating overhead rate is based on machine hours and the Assembly overhead rate is based on direct labor hours.

Calculate the allocation ratios to five significant digits and fill them into the following table (If an amount box does not require an entry, leave it blank or enter "0".) :

Maintenance HR GF Fabricating Assembly
General Factory
Human Resources
Maintenance

Using the allocation ratios, fill in the following table to allocate support department costs to the producing departments. (Round all allocated amounts to the nearest dollar. Leave cells blank that do not require an entry.)

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Expert Solution

ekkarill92 answered 1 year ago
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