The Copy Department of the Cadiz Company is budgeted to incur $40,000 per month

Question

The Copy Department of the Cadiz Company is budgeted to incur $40,000 per month in fixed costs and $0.02 per copy in variable costs. It allocates copy costs to user departments as follows: Fixed costs are allocated (as a lump sum) based on budgeted fixed costs and estimated peak demand for each department. Variable costs are allocated based on the budgeted rate per copy times the department's actual usage. Which of the following is not an advantage of this allocation scheme over allocating actual costs based on actual usage?
Answer


Using departments are not charged for cost overruns in the copy department.

The amount charged to one using department is not affected by the number of copies used by another department.

Managers in the using departments pay for the fixed costs that are created by their demands for capacity.

All of the above are advantages of this allocation system.

Explanation / Answer

All of these are advantages

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