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Comparison of Methods of Allocation Duweynie Pottery, Inc., is divided into two operating divisions: Pottery and...

  1. Comparison of Methods of Allocation

    Duweynie Pottery, Inc., is divided into two operating divisions: Pottery and Retail. The company allocates Power and General Factory department costs to each operating division. Power costs are allocated on the basis of the number of machine hours and general factory costs on the basis of square footage. No effort is made to separate fixed and variable costs; however, only budgeted costs are allocated. Allocations for the coming year are based on the following data: Use the rounded values for subsequent calculations.

    Support Departments Operating Divisions
    Power General Factory Pottery Retail
    Overhead costs $140,400 $171,600 $96,000 $56,000
    Machine hours 2,000 2,500 7,000 3,000
    Square footage 2,500 1,700 4,000 6,000

    Round all allocation ratios to four significant digits. Round all allocated amounts to the nearest dollar.

    Required:

    1. Allocate the support service costs using the direct method.

    Note: Input to two decimal places.

    Allocation Ratios Pottery Retail
    Proportion of machine hours
    Proportion of square footage
    Cost Allocations Pottery Retail
    Power $ $
    General Factory
    Direct costs
    $ $

    2. Allocate the support service costs using the sequential method. The support departments are ranked in order of highest cost to lowest cost.

    Note: If an amount is zero, enter "0". Input to two decimal places.

    Allocation Ratios Power General Factory Pottery Retail
    Machine hours
    Square footage
    Cost Allocations Power General Factory Pottery Retail
    Direct costs $ $ $ $
    General Factory
    Power
    Cost after allocation $ $ $ $
0 0
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Answer #1

Solution 1:

Allocation Ratios Pottery Retail
Proportion of machine hours 0.70 0.30
Proportion of square footage 0.40 0.60
Cost Allocations Pottery Retail
Power $98,280.00 $42,120.00
General Factory $68,640.00 $102,960.00
Direct costs $96,000.00 $56,000.00
Total $262,920.00 $201,080.00

Solution 2:

Allocation Ratios Power General Factory Pottery Retail
Machine hours 0.70 0.30
Square footage 0.20 0.32 0.48
Cost Allocations Power General Factory Pottery Retail
Direct costs $140,400.00 $171,600.00 $96,000.00 $56,000.00
General Factory $34,320.00 -$171,600.00 $54,912.00 $82,368.00
Power -$174,720.00 $122,304.00 $52,416.00
Cost after allocation $0.00 $0.00 $273,216.00 $190,784.00
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