31) The Alex Miller Corporation operates one central plant that has two division

Question

31) The Alex Miller Corporation operates one central plant that has two divisions, the Flashlight Division and the Night Light Division. The ollowing 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 S280,000 Variable operating costs Practical capacity Budgeted long-run usage per year: S10 per hour 20,000 hours per year Lamp Division 800 hours x 12 months- 9,600 hours per year 5,400 hours per year Flashlight Division 450 hours x 12 months - 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 wil 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 wil be allocated to the Lamp Division? To the Flashlight Division? Assume actual usage is used to allocate operating costs. be budgeted for the Lamp Division c. If a dual-rate cost-allocation method is used, what amount of operating costs each month? For the Flashlight Division each month? d. For the month of June, if a dual-rate cost-allocation method is used, what amount of cost will be allocated to the Lamp Division? To the Flashlight Division? Assume budgeted usage is used to allocate fixed operating costs and actual usage is used to allocate variable operating costs.

Explanation / Answer

Lamp Flashlight a Budgeted usage in hrs per mth 800 450 Variable operating cost per hour 10 10 Budgeted Operating Cost allocation per mth as per Single rate cost allocation method 8000 4500 b Lamp Flashlight Actual usage in hrs for June 700 400 Variable operating cost per hour 10 10 Operating Cost allocation as per Single rate cost allocation method for mth of June 7000 4000 c Lamp Flashlight Total Total fixed costs per annum 280000 Total budgeted hours per annum 9600 5400 15000 Fixed cost per hour = Total fixed cost pa /total budgeted hours pa 18.67 Lamp Flashlight Fixed cost per hour 18.67 18.67 Variable operating cost per hour 10 10 Total cost allocation per hour as per dual cost allocation method 28.67 28.67 X budgeted hours per month 800 450 Budgeted operating Cost allocation per mth as per Dual rate cost allocation method 22,936.00 12,901.50 d Lamp Flashlight Total Total fixed costs per annum 280000 Total budgeted hours per annum 9600 5400 15000 Fixed cost per hour = Total fixed cost pa /total budgeted hours pa 18.67 Lamp Flashlight Fixed cost per hour 18.67 18.67 X budgeted hours per month 800 450 Fixed Cost allocation for June as per Dual rate cost allocation method 14,936.00     8,401.50 (i) Variable operating cost per hour 10 10 X Actual usage in hrs for June 700 400 Variable Cost allocation for June as per Dual rate cost allocation method     7,000.00     4,000.00 (ii) Operating Cost allocation for June mth as per Dual rate cost allocation method 21,936.00 12,401.50 (i) + (ii)

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