Question

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 Overhead costs Machine hours Power General Factory $160,000 $430,000 $163,000 2,000 2,000 8,000 Small Motors $84,600 1,000

Answer 1

Answer is given below

1 Allocation ratios for General factory Battery Small motors Power 0.8889 0.1111 General factory 0.2727 0.7273 Working notes: Battery Small motors Power 8,000 1,000 9,000 Ratio 0.8889 0.1111 1.0000 General factory 7,500 20,000 27,500 Ratio 0.2727 0.7273 1.0000 1 2 Direct method Support Departments I Power General Factory Operating Divisions Small Battery Motors $163,000 $84,600 $160,000 $430,000 -$160,000 $142,224 $17,776 -$430,000 $117,261 $312,739 Departmental costs before allocations Allocate Power (Ratio of 0.8889: 0.1111) General factory (Ratio of 0.2727: 0.7273) Total Overheads Predetermined overhead rates Direct labor hours Direct labor hour rate $0 $422,485 $415,115 18,000 $23.47 60,000 $6.92| 3 Overhead rate Battery Overhead Rate $23.47 Small Motors Overhead Rate $6.92||