The Copy Department in the College of Business at State University provides phot
ID: 2564920 • Letter: T
Question
The Copy Department in the College of Business at State University provides photocopying service for both the Marketing and Economics Department. The following budget has been prepared for the year.
If the Copy Department uses a dual-rate for allocating its costs, how much cost will be allocated to the Marketing Department, assuming the Marketing Department actually made 4,200,000 copies during the year?
A.$183,000.
B.$181,250.
C.$209,000.
D.$207,250.
Available capacity 7,250,000 pages Budgeted usage: Marketing 4,800,000 pages Economics 2,400,000 pages Cost equation $156,000 + $0.025 per pageExplanation / Answer
Solution:
Dual rate method categorizes cost into two type of cost pools. Fixed Cost and variable cost.
We need to calculate different cost allocation for each cost pool.
In cost equation given in the question $156,000+ $0.025 per pages
In this equation both type of costs exist.. Fixed Cost $156,000 and Variable Cost $0.025 per pages
Variable Cost is allocated based on the actual copies made. i.e. 4200,000 copies x $0.025 per page = $105,000
Fixed Costs are allocated based on the budgeted usage. Since fixed costs are fixed in nature and known if beginning of the period. It is allocated on the estimated basis.
Hence the total Budgeted Usage of pages by both department = 4800,000 + 2400,000 = 7200,000
Fixed Cost allocated to marketing department = Total Fixed Cost * Budgeted usage of Marketing department / Total budgeted usage of pages by both department
= $156,000* 4800,000 / 7200,000
= $104,000
Hence,
Allocation of Variable Cost = $105,000
Plus: Allocation of Fixed Cost = $104,000
Total Allocation of cost to marketing department = $105,000 + 104,000 = $209,000
Correct option is C.$209,000
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