Question

Support Department Cost Allocation—Sequential Method

Snowy River Stallion Inc. produces horse and rancher equipment. Costs from Support Department 1 are allocated based on the number of employees. Costs from Support Department 2 are allocated based on asset value. Relevant department information is provided in the following table:

	Support Department 1		Support Department 2		Production Department 1		Production Department 2
Number of employees	9		7		25		18
Asset value	$1,150		$670		$6,230		$5,100
Department cost	$20,000		$15,500		$99,000		$79,000

Using the sequential method of support department cost allocation, determine the total costs from Support Department 1 (assuming they are allocated first) that should be allocated to Support Department 2 and to each of the production departments.

	Support Department 2		Production Department 1		Production Department 2
Support Department 1 cost allocation	$		$		$

Answer 1

Solution :

	Support Department 2	Production Department 1	Production Department 1
Support Department 1 Cost Allocation	$ 2,800	$ 10,000	$ 7,200

Working :

Support Department 1 Total Cost = $ 20,000

Total No. of Employee in Supprt Department 2 and Production Departments = 7 + 25 + 18

= 50

Allocation of Cost = Support Department 1 Cost / Total Employees * No. of Employees

Allocation to Support Department 2 = ($ 20,000 / 50) * 7

= $ 2,800

Allocation to Production Department 1   = ($ 20,000 / 50) * 25

= $ 10,000

Allocation to Production Department 2 = ($ 20,000 / 50) * 18

= $ 7,200

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