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	$316,000	$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

1	Sequential method of cost allocation					(Amount($)
	Allocation Ratios
			Power	General Factory	Purchasing	Pesticide	Liquid Fertilizer	Total
	Sqare Feet		1		1	3	3.4285	8.4285
	Machine Hours			701.5	672.5	6000	2000	9374
	Purchase Orders		1	2		6	3	12
	Cost Allocation
		Basis of Allocation	Power	General Factory	Purchasing	Pesticide	Liquid Fertilizer	Total
	Direct Cost		80000	316000	165000	78500	107400	746900
	General factory	S.feet	37492		37492	112476	128541	316000
	Purchasing	Purchase Orders	13750	27500		82500	41250	165000
	Power	Machine Hours		5987	5739	51205	17068	80000
	Total		131242	349487	208231	324681	294259	1307900
2	Departmental Overhead rates as per machine hours
		Over head cost(a)	Machine hours(b)	Rate(a/b)
	Pesticide	78500	24000	3
	Liquid Fertilizer	107400	8000	13