Question

Direct 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 $160,000 $350,000 $114,200 $95,000 Normal activity: Number of employees — 60 80 170 Square footage 1,000 — 5,700 13,300 The costs of the Human 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. Valron Company uses the direct method of support department cost allocation. Required: 1. Calculate the allocation ratios for the four departments using the direct method. If an amount is zero, enter "0". Round your answer to the nearest cent. Proportion of Driver Used by Human Resources General Factory Fabricating Assembly Human Resources General Factory 2. Using the direct 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". Support Departments Producing Departments Human Resources General Factory Fabricating Assembly Direct costs $ Allocate: Human Resources General Factory Total after allocation $

Answer 1

Answer:

Support departments are Human Resources and General Factory

Producing departments are Fabricating and Assembly

Human Resources Department are allocated on the basis of number of employees

General Factory are allocated on the basis of square footage

Valron Company uses the direct method of support department cost allocation

1. Calculation of allocation ratios

Total no. of Employees in Producing departments = 80 +170 = 250 employees

Human Resources Department cost allocated to Fabricating = 80/250 = 32%

Human Resources Department cost allocated to Assembly = 170/250 = 68%

Total Square foot occupied by Producing departments = 5,700 + 13,300 = 19,000 Square foot

General Factory Department cost allocated to Fabricating = 5,700/19,000 = 30%

General Factory Department cost allocated to Assembly = 13,300/19,000 = 70%

2. Allocation of costs using Direct Method

	Human Resources	General Factory	Fabricating	Assembly
Departmental Costs before allocation	$160,000	$350,000	$114,200	$95,000
Allocation of Human Resource department cost (32%,68%)	($160,000)	-	$51,200	$108,800
Allocation of General Factory department cost (30%,70%)	-	($350,000)	$105,000	$245,000
Total	-	-	$270,400	$448,800

$160,000 * 32% = $51,200

$160,000 * 68% = $108,800

$350,000 * 30% = $105,000

$350,000 * 70% = $245,000