# Chapter15 - CHAPTER 15 ALLOCATION OF SUPPORT-DEPARTMENT...

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CHAPTER 15 ALLOCATION OF SUPPORT-DEPARTMENT COSTS, COMMON COSTS, AND REVENUES 15-16 (20 min.) Single-rate versus dual-rate methods, support department. Bases available (kilowatt hours): Rockford Peoria Hammond Kankakee Total Practical capacity Expected monthly usage 10,000 8,000 20,000 9,000 12,000 7,000 8,000 6,000 50,000 30,000 1a. Single-rate method based on practical capacity: Total costs in pool = \$6,000 + \$9,000 = \$15,000 Practical capacity = 50,000 kilowatt hours Allocation rate = \$15,000 ÷ 50,000 = \$0.30 per hour of capacity Rockford Peoria Hammond Kankakee Total Practical capacity in hours Costs allocated at \$0.30 per hour 10,000 \$3,000 20,000 \$6,000 12,000 \$3,600 8,000 \$2,400 50,000 \$15,000 1b. Single-rate method based on expected monthly usage: Total costs in pool = \$6,000 + \$9,000 = \$15,000 Expected usage = 30,000 kilowatt hours Allocation rate = \$15,000 ÷ 30,000 = \$0.50 per hour of expected usage Rockford Peoria Hammond Kankakee Total Expected monthly usage in hours Costs allocated at \$0.50 per hour 8,000 \$4,000 9,000 \$4,500 7,000 \$3,500 6,000 \$3,000 30,000 \$15,000 2. Variable-Cost Pool: Total costs in pool = \$6,000 Expected usage = 30,000 kilowatt hours Allocation rate = \$6,000 ÷ 30,000 = \$0.20 per hour of expected usage Fixed-Cost Pool: Total costs in pool = \$9,000 Practical capacity = 50,000 kilowatt hours Allocation rate = \$9,000 ÷ 50,000 = \$0.18 per hour of capacity Rockford Peoria Hammond Kankakee Total Variable-cost pool \$0.20 × 8,000; 9,000; 7,000, 6,000 Fixed-cost pool \$0.18 × 10,000; 20,000; 12,000, 8,000 Total \$1,600 1,800 \$3,400 \$1,800 3,600 \$5,400 \$1,400 2,160 \$3,560 \$1,200 1,440 \$2,640 \$ 6,000 9,000 \$15,000 The dual-rate method permits a more refined allocation of the power department costs; it permits the use of different allocation bases for different cost pools. The fixed costs result from decisions most likely associated with the practical capacity level. The variable costs result from decisions most likely associated with monthly usage. 15-1

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15-17 (20–25 min.) Single-rate method, budgeted versus actual costs and quantities. 1. a. Budgeted rate = Budgeted indirect costs Budgeted trips = \$115,000/50 trips = \$2,300 per round-trip Indirect costs allocated to Dark C. Division = \$2,300 per round-trip × 30 budgeted round trips = \$69,000 Indirect costs allocated to Milk C. Division = \$2,300 per round-trip × 20 budgeted round trips = \$46,000 b. Budgeted rate = \$2,300 per round-trip Indirect costs allocated to Dark C. Division = \$2,300 per round-trip × 30 actual round trips = \$69,000 Indirect costs allocated to Milk C. Division = \$2,300 per round-trip × 15 actual round trips = \$34,500 c. Actual rate = Actual indirect costs Actual trips = \$96,750/ 45 trips = \$2,150 per round-trip Indirect costs allocated to Dark C. Division = \$2,150 per round-trip × 30 actual round trips = \$64,500 Indirect costs allocated to Milk C. Division = \$2,150 per round-trip × 15 actual round trips = \$32,250 2. When budgeted rates/budgeted quantities are used, the Dark Chocolate and Milk Chocolate Divisions know at the start of 2009 that they will be charged a total of \$69,000 and \$46,000 respectively for transportation. In effect, the fleet resource becomes a fixed cost for each division. Then, each may be motivated to over-use the trucking fleet, knowing that their 2009 transportation costs will not change.
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## This note was uploaded on 04/20/2011 for the course ACCT 100 taught by Professor Maik during the Spring '10 term at A.T. Still University.

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Chapter15 - CHAPTER 15 ALLOCATION OF SUPPORT-DEPARTMENT...

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