Question

(Appendix 4B) Direct Method of Support Department Cost Allocation Stevenson Company is divided into two operating divisions: Battery and Small Motors. The company allocates power and general factory costs to each operating division using the direct method. Power costs are allocated on the basis of the number of machine hours and general factory costs on the basis of square footage. Support department cost allocations using the direct method are based on the following data: Support Departments Operating Divisions General Factory Small Motors Power Battery Overhead costs $160,000 $430,000 $84,600 $163,000 7,500 Machine hours 2,000 2,000 2,000 Square footage 1,000 1,500 5,000 15,000 Direct labor hours 18,000 60,000 Required: 1. Calculate the allocation ratios for Power and General Factory. (Note: Carry these calculations out to four decimal places, if necessary.) Power General Factory Battery 0.7895 0.25 Small Motors 0.2105 0.75

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Answer 1

Answers

• Requirement 2

	Power	General Factory	Battery	Small Motors
Direct Cost	$160,000	$430,000	$163,000	$84,600
Allocate:
Power	($160,000)	$0	$126,320	$33,680
General factory		($430,000)	$107,500	$322,500
Total	$0	$0	$396,820	$440,780

--Working

	Power	General Factory	Battery	Small Motors
Direct Cost	160000	430000	163000	84600
Allocate:
Power	-160000	0	=160000*0.7895	=160000*0.2105
General factory		-430000	=430000*0.25	=430000*0.75

• Requirement 3

	Total Overhead after allocation	Tota Direct Labor hours	Overhead rates = Answer
Battery	$396,820	18,000	$                                22.05
Small Motors	$440,780	60,000	$                                  7.35