The Alex Miller Corporation operates one central plant that has two divisions, t
ID: 2371861 • Letter: T
Question
The Alex Miller Corporation operates one central plant that has two divisions, the Flashlight Division and the Night Light Division. The following data apply to the coming budget year:Budgeted costs of the operating the plant
for 10,000 to 20,000 hours:
Fixed operating costs per year $240,000
Variable operating costs $10 per hour
Practical capacity 20,000 hours per year
Budgeted long-run usage per year:
Lamp Division 800 hours × 12 months = 9,600 hours per year
Flashlight Division 450 hours × 12 months = 5,400 hours per year
Assume that practical capacity is used to calculate the allocation rates. Further assume that actual usage of the Lamp Division was 700 hours and the Flashlight Division was 400 hours for the month of June.
Required:
a. If a single-rate cost-allocation method is used, what amount of operating costs will be budgeted for the Lamp Division each month? For the Flashlight Division each month?
b. For the month of June, if a single-rate cost-allocation method is used, what amount of cost will be allocated to the Lamp Division? To the Flashlight Division? Assume actual usage is used to allocate operating costs.
Explanation / Answer
Practical capacity is 20000 hrs. SO Total Cost for Practical capacity = Fixed cost + Var cost = $240,000+20,000*$10 = $440,000 So Budgeted Hr rate for single-rate cost-allocation method = Total Cost/Practical capacity = $440,000/20,000 = $22 per hour a. Budgeted cost for :- Lamp Division 800 hours × $22 = $17,600 Flashlight Division 450 hours x $22 = $9,900 b. Actual amount of cost will be allocated to : Lamp Division 700 hours × $22 = $15,400 Flashlight Division 400 hours x $22 = $8,800
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