Refer to Cornerstone Exercise 7.3. 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.
In exercise Valron Company has two support departments, Human Resources and General Factory, and two producing departments, Fabricating and Assembly.

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 (rounded to four significant digits) for the four departments using the sequential method.
2. Using the sequential method, allocate the costs of the Human Resources and General Factory departments to the Fabricating and Assembly departments. (Round all allocated costs to the nearest dollar.)
3. What if the allocation ratios in Requirement 1 were rounded to six significant digits rather than four? How would that affect any rounding error in the allocation of costs?

Transcribed Image Text:

Support Departments Producing Departments Human Resources General Factory Fabricating Assembly Direct costs Normal activity: 160,000 S340,000S $114,600 $93,000 Number of employees Square footage 80 5,700 170 13.300 60 1,000