Support Department Cost Allocation Using the Step or Sequential Method

The step or sequential method requires that support departments be ranked and that the highest ranking support department be allocated first to all lower ranking support departments and the producing departments. Then the highest ranking support department is closed and the second-highest ranking support department is allocated to lower ranking support departments and the producing departments. This continues until all support department cost has been allocated to the producing departments. The sequential method takes - Select your answer -nopartialfullItem 1 account of support department reciprocity. Reciprocity occurs when one support department uses the services of another support department. For example, Maintenance uses HR and HR may use the services of Maintenance. The sequential method does not take full account of reciprocity because lower ranking support department costs are - Select your answer -alwaysoftenseldomneverItem 2 allocated to higher ranking support departments.

Let's use Porter Company, as an example. Porter has two producing departments (Fabricating and Assembly) and three support departments (Maintenance, Human Resources (HR) and General Factory (GF)). Porter provided the following information on the five departments:

	Maintenance	HR	GF	Fabricating	Assembly
Direct overhead cost	$75,600	$121,700	$247,700	$90,100	$54,800
Machine hours	1,000	3,400	5,050	11,880	4,620
Direct labor hours	4,500	5,000	7,850	12,285	33,215
Square footage	450	2,350	9,450	10,675	19,825

Porter uses the sequential method of support department cost allocation, and support departments are ranked in order of direct overhead cost (from high to low). Maintenance is allocated based on machine hours, HR on direct labor hours, and GF on the basis of square footage. The Fabricating overhead rate is based on machine hours and the Assembly overhead rate is based on direct labor hours.

Calculate the allocation ratios to five significant digits and fill them into the following table (Use the rounded values in the subsequent requirements. enter "0", if a support department is not allocated to another support department - for example, General Factory is not allocated to General Factory):

	Maintenance	HR	GF	Fabricating	Assembly
General Factory
Human Resources
Maintenance

Using the allocation ratios, fill in the following table to allocate support department costs to the producing departments. (If an amount is zero, enter "0". Use the rounded values in the subsequent requirements. Round all allocated amounts to the nearest dollar.)

	Maintenance	HR	GF	Fabricating	Assembly
Direct overhead cost	$75,600	$121,700	$247,700	$90,100	$54,800
Allocate:
General Factory
Human Resources
Maintenance
Total after allocation	$	$	$	$	$

Notice that after allocation, zero dollars remain in the support departments and all overhead cost has been allocated to the producing departments. As a check on your work, add all direct overhead costs from the first line - it equals $589,900. Then add the totals after allocation - again, it equals $589,900.

Finally, calculate the overhead rates (rounded to the nearest cent) for Fabricating and Assembly.

Fabricating overhead rate	$	per machine hour
Assembly overhead rate	$	per direct labor hour