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Sequential (Step) 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
Direct costs
Human
General
Resources
Factory
Producing Departments
Fabricating Assembly
$180,000
$340,000
$114,200
$93,000
—
50
70
170
1,900
—
5,900
13,900
Normal activity:
Number of employees
Square footage
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. Now assume that Valron Company uses the sequential method to allocate
support department costs. The support departments are ranked in order of highest cost to lowest cost.
Required:
1. Calculate the allocation ratios (rounded to four significant digits) for the four departments using the sequential
method. If an amount is zero, enter "0". Use the rounded values for subsequent calculations.
Proportion of Driver Used by
Human Resources General Factory Fabricating Assembly
Human Resources
General Factory
✔
✔
0
0
✔
✔
0.0876
✔
✔
0.2917
0.7083
✔
0
✔
0.2719
0.6406
2. Using the sequential 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". Round your answers to the nearest dollar.
Direct costs
Support Departments
Producing Departments
Human Resources General Factory
Fabricating Assembly
$
✔
180,000
$
✔
340,000
$
✔
114,200
$
✔
93,000
Allocate:
General Factory
Human Resources
Total after allocation
✔
29784
✔
340,000
✔
✔
92446
✔
209784
$
✔
0
$
✔
✔
217804
✔
61194
$
✔
✔
148590
$
✔
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0
0
267840
459394
Feedback
Check My Work
1. The sequential method, as well as direct and reciprocal methods, allocates all support department costs to
the producing departments.
2. The sequential (or step) method ranks support departments and allocates from top ranking to lower
ranking. Some reciprocity is recognized. After allocation, zero cost remains in the support departments. Preallocation total overhead must equal post-allocation overhead.
Post-Submission
1.
1Proportion
of employees in Fabricating = 70/(70 + 170) = 0.2917
2
Proportion of employees in Assembly = 170/(70 + 170) = 0.7083
3Proportion
of sq. ft. in Human Resources = 1,900/(1,900 + 5,900 + 13,900) = 0.0876
4Proportion
of sq. ft. in Fabricating = 5,900/(1,900 + 5,900 + 13,900) = 0.2719
5Proportion
of sq. ft. in Assembly = 13,900/(1,900 + 5,900 + 13,900) = 0.6406
2.
1
Human Resources = 340,000 × $0.0876 = $29,784; Fabricating = 340,000 × $0.2719 = $92,446; Assembly
= 340,000 × $0.6406 = $217,804
2Fabricating
= 209,784 × $0.2917 = $61,194; Assembly = 209,784 × $0.7083 = $148,590
Solution
Sequential (Step) 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
Direct costs
Human
General
Resources
Factory
Producing Departments
Fabricating Assembly
$180,000
$340,000
$114,200
$93,000
—
50
70
170
1,900
—
5,900
13,900
Normal activity:
Number of employees
Square footage
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. Now assume that Valron Company uses the sequential method
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to allocate support department costs. The support departments are ranked in order of highest cost to lowest
cost.
Required:
1. Calculate the allocation ratios (rounded to four significant digits) for the four departments using the
sequential method. If an amount is zero, enter "0". Use the rounded values for subsequent calculations.
Proportion of Driver Used by
Human Resources General Factory Fabricating
Human Resources
General Factory
Assembly
0
0
0.2917
0.7083
0.0876
0
0.2719
0.6406
2. Using the sequential 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". Round your answers to the
nearest dollar.
Support Departments
Producing Departments
Human Resources General Factory
Direct costs
$
180,000
$
340,000
Fabricating
$
114,200
Assembly
$
93,000
Allocate:
General Factory
29784
Human Resources
Total after allocation
340,000
209784
$
0
0
$
0
$
92446
217804
61194
148590
267840
$
459394
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