Three Accounting Questions 2015

Direct Method of Support Department Cost Allocation
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

General
Factory

Power

Battery

Small
Motors

Overhead costs

$160,000

$430,000

$163,000

$84,600

Machine hours

2,000

2,000

7,500

1,000

Square footage

1,000

1,500

7,500

15,000

18,000

60,000

Direct labor hours
Required:

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

General Factory

____________________

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
Power
$
Direct costs

Allocate:
Power

Operating Divisions
General Factory
$

Battery
$

Small Motors
$

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