Question

Stevenson Company is divided into two operating divisions: Battery and Small Motors. The company allocates power...

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
Power General Factory Battery Small Motors
Overhead costs $160,000 $430,000 $163,000 $84,600
Machine hours 2,000 2,000 7,000 1,000
Square footage 1,000 1,500 5,000 15,000
Direct labor hours 18,000 60,000

Required:

1. Calculate the allocation ratios for Power and General Factory. (Note: Carry these calculations out to four decimal places, if necessary.)

Power General Factory
Battery
Small Motors

2. Allocate the support service costs to the operating divisions. Round all amounts to the nearest dollar. Use a minus sign to indicate a subtraction. For those boxes in which no entry is required, leave the box blank or enter zero ("0").

Support Departments Operating Divisions
Power General Factory Battery Small Motors
Direct costs $ $ $ $
Allocate:
    Power
    General Factory
Total $ $ $ $

3. Assume divisional overhead rates are based on direct labor hours. Calculate the overhead rate for the Battery Division and for the Small Motors Division. Round your answers to the nearest cent.

Battery overhead rate $
Small Motors overhead rate $
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Homework Answers

Answer #1
Req 1: Allocation ratios:
Power General factory
battery 87.50% 25%
Small Motors 12.50% 75%
(in 7:1) (in 5000:15000)
Req 2:
Allocation of support Direct cost:
Supporting Operating
Power Gen. factory battery Small Motors
Direct Cost 160000 430000 163000 84600
Allocate:
Ppower -160000 140000 20000
General Factory -430000 107500 322500
Total Overheads 0 0 410500 427100
Req 3:
OH rate based on DLH
Battery Small Motors
Total Overheads allocated 410500 427100
Divide: Dlh 18000 60000
OH rate per DLH 22.81 7.12
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