Question

K L M N O P B6 : x V for А в F G H I J 1 Part 1 2 Pottery Inc., is divided into 2 operating divisions: Pottery and Retail. The company allocates Power and General Factory department costs to each operating division. 3 Power costs are allocated on the basis of the number of machine hours and general factory costs on the basis of square footage. 4 Allocation for the coming year are based on the following data? Support Departments Operating Divisions General factory Power Department Department Pottery Retail Direct costs $150,000 $160,000 $98,000 $56,000 Normal Activity: Machine Hours 1000 6,900 3,100 11 Square Footage 2000 4000 6,000 12 13 Please make sure you review Cornerstone 7.3 and 7.4 before attempting this part of the project. 14 For all requirements, round allocation ratios to four significant digits and round allocated costs to the nearest dollar. 15 16 Required: Complete 1-5 below and all computations below must use cell references. 17 1. Calculate the allocation ratios for the departments using the direct method in the table provided below. 18 Power Department General factory 19 Pottery Retail Department Power Department General factory Department 22 23 2. Using the direct method, allocate the costs of the Power Department and General Factory Department to the Pottery 24 and Retail departments in the table provided below. 1 Project 3 Part 1 Part 2 Budget Template + Ready 9 -

Answer 1

1) Ratios as per direct method:
	power deptt.	GF Deptt.	Pottery	Retail
Power deptt	0	0	69/100=0.69	31/100=0.31
GF deptt.	0	0	4/10=0.4	6/10=0.6
2) Allocation as per direct method:
	power deptt.	GF Deptt.	Pottery	Retail	Total
Direct Costs	150000	160000	98000	56000	464000
Allocation:
Power Deptt	-150000		103500	46500
GF Deptt		-160000	64000	96000
Total After allocation	0	0	265500	198500	464000
3) Support department ratio of service to other support department:
	power deptt.	GF Deptt.
Power deptt	0	10/110=0.0909
GF deptt.	2/12=0.1667	0
Allocation preference	2nd	1st
4) Allocation ratio among department using step method:
	power deptt.	GF Deptt.	Pottery	Retail
Power deptt	0	10/110=0.0909	69/110=0.6273	31/110=0.2818
GF deptt.	2/12=0.1667	0	4/12=0.3333	6/12=0.5
5) Using sequential (step) method, allocation of support costs to operating deptt:
	power deptt.	GF Deptt.	Pottery	Retail	Total
Direct Costs	150000	160000	98000	56000	464000
Allocation first:
GF Deptt	26672	-160000	53328	80000	0
Total	176672	0	151328	136000
Allocation second:
power deptt.	-176672	16059	110826	49786	0
Total	0	16059	262154	185786
Allocation third:
GF Deptt		-16059	6424	9636	0
Total after allocation	0	0	268578	195422	464000