Question

1. Sequential (Step) Method of Support Department Cost Allocation

   Valron Company has two support departments, Human Resources and General Factory, and two producing departments, Fabricating and Assembly.

   	Support Departments			Producing Departments
   	Human Resources	General Factory		Fabricating	Assembly
   Direct costs	$170,000	$330,000		$114,600	$91,000
   Normal activity:
   Number of employees	—	50		70	160
   Square footage	1,100	—		5,900	13,000

   
   Resources Department are allocated on the basis of number of employees, and the costs of General Factory are allocated on the basis of square footage. Now assume that Valron Company uses the sequential method to allocate support department costs. The support departments are ranked in order of highest cost to lowest cost.

   Required:

   1. Calculate the allocation ratios (rounded to four significant digits) for the four departments using the sequential method. If an amount is zero, enter "0". Use the rounded values for subsequent calculations.

   	Proportion of Driver Used by
   	Human Resources	General Factory	Fabricating	Assembly
   Human Resources
   General Factory

   2. Using the sequential method, allocate the costs of the Human Resources and General Factory departments to the Fabricating and Assembly departments. If an amount is zero, enter"0". Round your answers to the nearest dollar.

   	Support Departments			Producing Departments
   	Human Resources	General Factory		Fabricating	Assembly
   Direct costs	$	$		$	$
   Allocate:
   General Factory
   Human Resources
   Total after allocation	$	$		$	$

Answer 1

Answers

• Requirement 1

	Proportion of Driver Used by
	Human Resources	General Factory	Fabricating	Assembly
Human Resources			0.3043 [70/(70+160)]	0.6957 [160/(70+160)]
General Factory	0.0550 [1100/(1100 + 5900 + 13000)]		0.2950 [5900/(1100 + 5900 + 13000)]	0.6500 [5900/(13000 + 5900 + 13000)]

• Requirement 2

	Support Departments			Producing Departments
	Human Resources	General Factory		Fabricating	Assembly
Direct costs	$170,000	$330,000		$114,600	$91,000
Allocate:
General Factory	$18,150	($330,000)		$97,350	$214,500
Human Resources	($188,150)	$0		$57,254	$130,896
Total after allocation	$0	$0	$0	$269,204	$436,396

--Working

	Support Departments			Producing Departments
	Human Resources	General Factory		Fabricating	Assembly
Direct costs	170000	330000		114600	91000
Allocate:
General Factory	=330000*0.055	-330000		=330000*0.295	=330000*0.65
Human Resources	=-170000-18150	0		=188150*0.3043	=188150*0.6957