Problem #2: Service Allocation Ryan Company’s 2016 annual budget for its three service departments

| March 30, 2017

Question
Sequential Method

Problem #2: Service Allocation

Ryan Company’s 2016 annual budget for its three service departments (Administration, Accounting, and Engineering) and its two production departments (Assembly and Finishing) is presented below:

Service Departments

Production Departments

Administration

Accounting

Engineering

Assembly

Finishing

Overhead

1,065

500

900

2,800

2,000

Square feet

400

300

300

800

1,000

Number of employees

40

25

30

200

150

Engineering hours

10

20

15

80

75

Assume that expected activity bases in Assembly and Finishing, respectively are 24,000 and 20,000 machine hours

Required:

1.Allocate the overhead costs to the producing departments using the direct method

2.Using machine hours, compute departmental overhead rates

3.Allocate the overhead costs to the producing departments using the sequential method.

4.Using machine hours, compute departmental overhead rates.

Direct Method

P1

P2

S1

S2

S3

Subtotal

Direct Costs

Total

Sequential Method

S1

S2

S3

P1

P2

Direct Costs

S1

S2

S3

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