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	$312,000	$169,000	$78,800	$107,700
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

Answer

• [1]

	Power	General Factory	Purchasing	Pesticide	Liquid Fertilizer
Square feet [1500 + 1500 + 4200 + 4800 = 12000]	0.1250		0.1250	0.3500	0.4000
Machine hours [24000 + 8000 = 32000]				0.7500	0.2500
Purchase orders [ 20 + 120 + 60 = 200]	0.1000			0.6000	0.3000

--Working

	Power	General Factory	Purchasing	Pesticide	Liquid Fertilizer
Square feet [1500 + 1500 + 4200 + 4800 = 12000]	=1500/12000		=1500/12000	=4200/12000	=4800/12000
Machine hours [24000 + 8000 = 32000]				=24000/32000	=8000/32000
Purchase orders [ 20 + 120 + 60 = 200]	=20/200			=120/200	=60/200

• [2]

	Power	General Factory	Purchasing	Pesticide	Liquid Fertilizer
Direct costs	$80,000	$312,000	$169,000	$78,800	$107,700
General Factory	$39,000	($312,000)	$39,000	$109,200	$124,800
Purchasing	$20,800		($208,000)	$124,800	$62,400
Power	($139,800)			$104,850	$34,950
Total	$0	$0	$0	$417,650	$329,850

--Working

	Power	General Factory	Purchasing	Pesticide	Liquid Fertilizer
Direct costs	80000	312000	169000	78800	107700
General Factory	=312000*0.125	-312000	=312000*0.125	=312000*0.35	=312000*0.4
Purchasing	=208000*0.1		=-169000-39000	=208000*0.6	=208000*0.3
Power	=-80000-39000-20800			=139800*0.75	=139800*0.25

• [3]

Overhead Rates
Pesticide	$                       17.40	$ per machine hour
Liquid Fertilizer	$                       41.23	$ per machine hour